Bankruptcy vs. Forbearance: Mortgage and Debt Work-Out in St. Peter, MN

After the COVID-19 shutdowns and the peak of the pandemic, many individuals and small businesses faced financial difficulties. If you have debts you know you can’t repay, you’re not alone. There are many ways to work out that debt, from settlement to bankruptcy. For households with high unsecured debts, like credit card bills and medical expenses, in addition to common secured debts, like a mortgage and car loan, filing for bankruptcy will most likely be the best solution for long-term debt relief and financial stability. If you’re considering filing for bankruptcy for debt work-out in St. Peter, MN and the surrounding areas, Behm Law Group, Ltd. offers legal protection, guidance, and support throughout your case.

Debt Relief

We provide legal services for individual consumer cases through Chapter 7, 12, and 13, as well as small business Chapter 7 and Chapter 13 cases. Filing for bankruptcy can help resolve multiple debts, including your mortgage. About 45% of consumers in the U.S. have mortgage debt. Mortgages, along with credit card debt and student loans, are one of the most common types of debt included in bankruptcy.

Debt Work-out

If you use bankruptcy for debt work-out, your mortgage and home could be handled one of three ways:

  1. Any pre-bankruptcy filing delinquency you have on your mortgage could be included in the reorganization of your debts into a three- to five-year repayment plan through Chapter 13. You will keep your home and end up repaying your reorganized mortgage in full after the repayment plan ends.
  2. If you want, your mortgage debt may be discharged and the mortgage lender could foreclose on your home in a Chapter 7 bankruptcy. After your case concludes, you may have to eventually vacate the home, but you will no longer be responsible for the mortgage debt.
  3. Your mortgage may be retained in Chapter 7 and you can keep your home from the chapter 7 trustee and from liquidation by protecting the equity (value that exceeds the amount of debt you owe) you have in the home with the Homestead Exemption. In Minnesota, this exemption applies to homes with equity or net value of $420,000 or less for houses in urban areas and $1,050,000 less for homesteads used primarily for agricultural purposes.  You could sell your house, payoff the underlying mortgages and retain any remaining sale proceeds.  This is somewhat common in Chapter 7 cases.


If the only debt you can’t meet monthly payments for is your mortgage, you might want to consider a forbearance (example) with your mortgage lender rather than a bankruptcy. A forbearance allows you to pause payments or make lower payments temporarily. This can be beneficial for a short time and prevents foreclosure, but you will still have to pay property taxes, make up the additional amounts later, pay a forbearance fee, and the interest amounts due may increase.

If you have debts in addition to your mortgage, filing for bankruptcy will resolve them together. To learn more about bankruptcy debt work-out in St. Peter, MN, contact Behm Law Group, Ltd. today at (507) 387-7200 or