Paying more than one mortgage payment per month is hard, particularly when you find yourself in a financial bind. If you are experiencing financial trouble and have more than a single mortgage on your home, you may feel especially overwhelmed by your circumstances. However, there is hope for debtors who have multiple mortgages on their homes. Chapter 13 bankruptcy is an option you should consider if you aren't able to make your mortgage payments.
Ultimately, some will decide Chapter 7 bankruptcy is best for them, but you need to know Chapter 13 is a viable choice in a lot of situations. It's not right for everyone, but it can be a source of relief for many.
How Chapter 13 bankruptcy can help you with a second mortgage
Chapter 13 bankruptcy refers to a specific section of the United States Bankruptcy Code; there are several chapters dealing with bankruptcy, but most private citizens are affected by Chapter 13 and Chapter 7. Each chapter has its own requirements and responsibilities, as well as advantages and disadvantages.
Chapter 7 bankruptcy is the most drastic of the two; it results in a complete discharge of all debts, secured and unsecured, but it carries a cost: with only a few exceptions, all secured property must be surrendered to the bankruptcy court for distribution to the creditors.
However, with Chapter 13 bankruptcy, the individual is provided with a payment plan that helps them manage their debt repayment. This payment plan typically applies to secured debt, such as homes, cars and other possessions. For credit cards and other unsecured loans, the debt is usually settled for a much lower amount than what is owed.
This means you can keep your secured property and not be forced into surrendering it for distribution to creditors. In the case of homes, Chapter 13 bankruptcy permits you to set-up such a payment arrangement for your first mortgage and keep your home if you adhere to the plan.
One of the powerful advantages offered by Chapter 13 bankruptcy is the ability to release a second mortgage altogether while still keeping your home. If your first mortgage is the same amount or more than your home's value, then the law converts additional mortgages to unsecured debt after bankruptcy. At that point in time, you will be able to settle that obligation the same as any other unsecured debt, which usually means for a lot less money.
Knowing which to choose: Chapter 13 or Chapter 7 bankruptcy
You should carefully "screen" your particular situation to make sure you will truly benefit from Chapter 13 bankruptcy and find relief from a second mortgage debt. In some circumstances, Chapter 7 bankruptcy might be your best alternative, and it is important you understand your options.
Below are a few factors that can help you decide whether Chapter 13 bankruptcy or Chapter 7 bankruptcy makes sense for you:
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Disposable income level – in general, the less money you have available as "disposable income" will help keep your repayment amounts low for unsecured debt. If you make too much money, then your percentage will rise and may make Chapter 13 bankruptcy a poor option. However, be sure you understand how much you may have to surrender if you file for Chapter 7 bankruptcy; it, too, can cost you money if your income is too high.
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Ability to make regular monthly payments – as long as you will be able to make the required monthly payments during the term of your Chapter 13 bankruptcy, you will be able to discharge your unsecured debt after the payments are finished. However, if you knowing going into it you can't afford the payments, you probably should pursue Chapter 7 bankruptcy to eliminate the second mortgage. By attempting to make payments and failing, the second mortgage balance will continue to build and accrue late fees and interest. That means after you exit Chapter 13 bankruptcy, you will owe even more than before. Chapter 7 bankruptcy will cost you your home, of course, but at least you can start with a clean financial slate.
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Amount of equity in your home - if you hold some equity in your home, then a second mortgage holder secured claim will remain intact. That means a second mortgage cannot be converted to unsecured debt and settled; filing Chapter 13 bankruptcy may still make sense for you, but you will lose that major advantage.
If you are considering bankruptcy as a way of trying to manage your second mortgage debt, a bankruptcy attorney can assist you with understanding the complexities of the law. They will not only give you sound advice regarding which option is best for you, but they will also guide you through the process.
Check out sites like http://www.kreislerlaw.com for more information.
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