How to Discharge Mortgage Debt

You can free yourself from your mortgage--for a price.

Discharging mortgage debt without paying it off in full requires either successfully filing for bankruptcy or defaulting on the mortgage and waiting until the statute of limitations expires. Discharging mortgage debt is a risky procedure that can result in losing other assets to seizure in order to repay the debt. In many cases, however, discharging mortgage debt can be an excellent method to cure what would otherwise be an intractable personal finance problem. Discharging mortgage debt also necessitates giving up any home equity to the mortgagor.

Instructions

1. Review your personal financial situation carefully before deciding to discharge your mortgage debt. You may not necessarily have to enter foreclosure to successfully file for bankruptcy and discharge your mortgage debt. However, if you want to default on your mortgage without bankruptcy, you will need to go through the foreclosure process. Determine if defaulting on your mortgage is correct for you before proceeding.

2. Consult with a bankruptcy lawyer before stopping payments on your mortgage or filing for bankruptcy. You will need to reduce your expenditures significantly and make a good-faith effort to repay at least some of your creditors before a judge will consider your bankruptcy filing. In general, it's best to reduce all expenditures to essentials and debt repayments for at least six months before filing for bankruptcy.

3. File for Chapter 7 or Chapter 13 bankruptcy in your state when you're prepared to go through the process. You will be expected to bring your financial records to the court for review. Chapter 7 bankruptcy discharges most of your debts immediately and halts any foreclosure process. Chapter 13 bankruptcy creates a repayment plan for your creditors in exchange for overall debt reductions.

4. Complete your bankruptcy filling, which should successfully discharge your debts, including your mortgage. The court will permit you to keep a small portion of your assets, but the majority of your possessions will be expected to be sold to repay at least some of your creditors.

Tips & Warnings

• The statute of limitations on debts differs among states.

References

• Bills.com: Mortgage Debt & Reopening a Chapter 7 Bankruptcy
• FTC.gov: Knee Deep in Debt
• Nolo.com: Chapter 7 Bankruptcy Guide

Resources

• BCS Alliance: Debt Statute of Limitations by State