At the law offices of Jimmy E. McElroy & Associates in Tennessee, we understand and empathize with the way our clients feel when they face overwhelming debt and bankruptcy is their only way out. Sometimes Chapter 7 better fits their needs, but if you want to save your home from foreclosure and have a second mortgage on it, Chapter 13 may be your best option.
As explained by SFGate.com, Chapter 13 may allow you to strip the lien your second mortgage lender holds on your home. Keep in mind that whereas Chapter 7 discharges virtually all of your consumer and credit card debt, Chapter 13 affords you the opportunity to reorganize debts and pay most of them off over a long period of time, usually three or five years. You do this by devising a court-approved payment plan and living up to its financial obligations during your bankruptcy period.
Secured versus unsecured creditors
When you file for Chapter 13 bankruptcy, the court divides your creditors into two classifications: secured and unsecured. Your secured creditors are those to whom you provided collateral for your debts; your unsecured creditors have no collateral and therefore have little or no chance of recovering the full amount of your debts.
Your second mortgage lender generally falls into the unsecured creditor classification, especially if you have little or no equity in your home. As such, the Bankruptcy Court has the authority to strip your second mortgage holder of any lien it has or claims to have against your home. When your bankruptcy period ends, the court discharges all of your unsecured debts not covered in your repayment plan, thereby removing your second mortgage and leaving you free to continue paying only the balance of your first mortgage.
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