What Happens When My Mortgage Company Goes Bankrupt?

In these days of old-line financial powerhouses filing for bankruptcy and continuing questions about the economic stability of banks and mortgage companies, we are often asked what happens if your mortgage company goes bankrupt?

The answer is actually pretty simple and straightforward.

You pretty much don’t do anything differently than you’re doing now.

You still need to make your monthly payments. You still need to keep your property insured and pay the property taxes (if you aren’t paying the insurance and taxes as part of an escrow).

Why should you do these things if your mortgage company files bankruptcy? Because if you don’t, the mortgage company, acting through a trustee or receiver (in a Chapter 7 liquidation), or as as a debtor-in-possession (in a Chapter 11 reorganization) will still file for foreclosure against your property. The mortgage company is still entitled to receive payment; the bankruptcy filing doesn’t change that, regardless of whether it’s a Chapter 7 or a Chapter 11.

You may eventually receive a notice that your payments need to be sent to a different address or to a different company. Be sure to check this out; a phone call (not to the number on the notice) to verify that your account has actually been transferred is always smart.

From the mortgage company’s perspective, of course, things look entirely different. In a Chapter 7, a Trustee typically will operate the business until a buyer or servicer for the accounts can be found. In a Chapter 11, there are a host of issues related to continuing to operate the company, obtain new financing, etc. But from your perspective, it’s probably going to be business as usual.