I mainly practice in bankruptcy law. I hope to start a blog that includes articles about issues in bankruptcy law and cases I’ve had. I start with a simple question that I get a lot from potential clients: Can I keep my house in bankruptcy?

My very-lawyerly answer? “It depends.” Usually the debtor can keep the house, but he or she has to keep paying the mortgage. The mortgage is not wiped out in bankruptcy. However, if you are late in your payments, the house is being foreclosed on, and you believe that you will lose the house anyway, then bankruptcy is a good option. The lender cannot foreclose on a house unless the bankruptcy court gives approval; this takes several months, during which you can stay in the house. And when the house is finally foreclosed on, there is usually a cancelation of debt, which becomes income to the debtor. When the foreclosure occurs after bankruptcy, that income is not taxable. If the house is foreclosed on outside of bankruptcy, that income may be taxed (if it’s your primary residence, it won’t be, but not every house foreclosure is for a primary residence).

But let’s say that you’re late on mortgage and want to keep the house: is bankruptcy a good idea?  Usually, yes. Under a chapter 13 reorganization plan you can take the arrearages (the amount of the mortgage that is past due) and pay these arrearages out over the next 5 years. You still have to make the regular mortgage payments too, so you’re making a larger monthly payment than you normally would, but at the end of the five years you’re up to date on your mortgage and you’re discharged of other debts. So long as the payments are current, the lender cannot foreclose during those five years.

So yes, debtors can keep their homes in bankruptcy, and it is a good option to those who are late on a mortgage.