Chapter 13 is the proceeding to file if you want to eliminate your second mortgage or are behind on your mortgage and need time to catch up. If there is no equity in your second mortgage you can "lien strip" your mortgage and never have to pay it.
Chapter 13 can allow you to pay off debt over time without the high interest rates creditors often charge.
Most people know that if they do not qualify for a Chapter 7, they must file a Chapter 13 if the want Bankruptcy relief. This is true, but Chapter 13 can offer much more. There are opportunities under Chapter 13 that may be a benefit for people who could otherwise qualify for Chapter 7.
Catch up on your Mortgage - Chapter 13 is the proceeding to file if you are behind on your mortgage and need time to catch up. You make your regular payment and a portion of your arrearage each month to bring your loan current. This is an option if you had a reduction of income which is now back to normal. Because it increases the monthly payment, but does not affect the value, it may only be attractive where there is equity in your house.
Strip-off a Second Mortgage on Principal Residence – If your second mortgage is totally unsecured, filing Chapter 13 can remove the mortgage from your property. In most cases this provides a substantial saving and may bring the debt closer to the value of your property. As an example lets say your house is worth $132,000 in this market. You have a first mortgage in the amount of $150,000 and a second mortgage in the amount of $35,000. In a Chapter 13 the second mortgage can be removed and will be forgiven upon completion of the plan. This cannot be done in Chapter 7.
Pay Off Unsecured Debt Without Interest – If, because of your income, you cannot file Chapter 7, but you want to pay off your debt without the high rate of interest on your credit cards. Chapter 13 may allow you to pay off the debt without interest accruing. This can be a large savings over several years.
Save Non-Exempt Property by Extended Payments – In Bankruptcy, certain property is wholly exempt, like the value of your house if you have resided there for a period of time, and your 401K and your IRA. Most people do not have much non-exempt property. The valuation is critical. You do not use the original cost. Fair Market Value for many items may be the value you would get at a ”yard sale”. If you do have excessive property you may make payments over a period of time. You make payments to the Trustee who then pays the creditors while you keep your property.
