When you think of bankruptcy, you likely think that the best route to go would be to file a Chapter 7. This will discharge all of your unsecured debt and permit you to keep your real estate as long as you are current on the mortgage payments and the equity is not above and beyond the allowable exemptions. While sometimes this would be true, there are some circumstances where you would be better off to file a Chapter 13, even if you qualify for a Chapter 7.
The first example would be if you want to keep your home but you are behind on your mortgage payments. In a Chapter 7, the mortgage company does not have to work with you to get current on past due payments. They can still file a foreclosure and you could lose your home if you are not able to pay the past due balance in full. With a Chapter 13, which is often thought of as a “debt consolidation” bankruptcy, you can propose to pay back what you are behind on the mortgage over a period of 36 to 60 months and the mortgage company has to accept that repayment plan (as long as you are paying everything back that is due).
Another great time to file a Chapter 13 bankruptcy, even when you qualify for a Chapter 7, is when you have a second mortgage or equity line of credit. If the balance of your first mortgage is more than the value of your home, you may be able to “strip off” or “void” the second mortgage. What this means is that you do not have to pay the monthly payment on the second mortgage during the life of the Chapter 13 repayment plan, and when your plan is complete and you receive a discharge, the second mortgage lien is removed from your home. In essence, you will now only have the first mortgage to pay and the second mortgage just goes away.
With all of this being said, it is best to consult with an attorney to determine which option is best for you. At the Law Office of Wayne P. Novick, we can analyze your situation during a free consultation and advise you as to the best solution for your financial situation. Please call us at 937-436-2606 to schedule your free consultation today.