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How bankruptcy affects home ownership

New Jersey residents who have trouble paying off their debts may consider seeking bankruptcy relief. However, there can be some confusion regarding how bankruptcy can affect a person’s home mortgage obligations and what expenses must be paid.

When consumers file for Chapter 7 bankruptcy, they must either affirm the mortgage or refinance it under a new loan in order to keep their home. Otherwise, the obligation to pay the mortgage is discharged in the bankruptcy, and the bank will take possession of the property. If a homeowner does not reaffirm the loan in writing, any payments made toward the mortgage do not create liability once the mortgage has been discharged via a bankruptcy proceeding.

When the bank takes a person’s home following a bankruptcy, it’s shown as a foreclosure on his or her credit report. A homeowner who filed for bankruptcy is not responsible for paying property taxes. However, if the property taxes are not paid either by the owner or the lender, the county may foreclose on the home and sell it before the bank does. Homeowner’s association dues are different; those amounts are the personal responsibility of the homeowner as long as the property is in the person’s name. Common expenses that become due after the bankruptcy is filed are not discharged, and the association can and will foreclose if the homeowner stops paying monthly dues. The association can also get a personal judgment against the homeowner if they are unable to obtain payment following a foreclosure sale.

If a homeowner is unable to pay debts, a bankruptcy attorney could help them to keep their home. An attorney may review the person’s financial situation in order to offer advice on the best course of action for addressing their debts.

Source: FOX Business, “Which Home Payments Matter after Bankruptcy?“, Justin Harelik, November 06, 2013

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