What Are My Chances for a Mortgage Renewal after Bankruptcy?
In most cases, you will be allowed to make your mortgage renewal after bankruptcy, as if you haven’t filed for personal bankruptcy.
When you go bankrupt, your trustee will determine if there is equity in your house. Equity is defined as the difference between what the house is worth, and what is owing on the mortgage and other encumbrances (like outstanding property taxes). If the value of the house is approximately equal to what is owing on it, the trustee will allow you to keep the house.
If there is some equity, under condition that you contribute the amount equal to what’s the equity worth into your bankruptcy estate (perhaps by borrowing from family or getting a second mortgage – which is difficult if you are bankrupt), the trustee will allow you to keep your house.
Here’s an example: You went bankrupt one year into a five year mortgage; there is no equity in your house. When your bankruptcy is over, will the bank allow you to make your mortgage renewal?
Most mortgages contain a standard clause that says something like “if you go bankrupt, we can foreclose on your house”. Even though that term exists, banks virtually never foreclose just because you went bankrupt.
The reason is simple: the bank would prefer to have you make the morgage renewal and continue paying off both the principal amount and the interest, for the next 25 years, than to foreclose on it now, and risk losing all the future profit plus an additional amount of money by selling your house at a discounted foreclosure price.
To be sure you should check with your lender, but in most cases, provided that mortgage payments are up to date, bankrupts are able to make a mortgage renewal after bankruptcy.