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Restructure debt and eliminate a second mortgage with Chapter 13

Perhaps you have a steady income, but you are falling behind on many of your financial obligations. We often help people determine whether they may be able to file Chapter 13 bankruptcy and restore their financial equilibrium.

According to the U.S. Bankruptcy Court, rather than liquidating assets as you would in a Chapter 7 bankruptcy, you can file Chapter 13 to restructure your debts and create a new repayment plan.

Disposable income

Restructuring involves determining how much disposable income you have and making affordable monthly payments to a bankruptcy trustee. The trustee then distributes the money to the lenders in order of priority.

To figure disposable income, you must fill out a worksheet to determine your monthly expenses. Expenses include food, clothing, transportation and other necessities, as well as obligations such as taxes and child support, which you cannot include in the bankruptcy.

Debt priority

Secured debts such as home and vehicle loans are the first priority. So, when the trustee puts together a repayment plan, he or she includes the amount it will take to catch up arrears and keep payments current first.

If your disposable income is more than enough to cover your secured debts, the trustee will also make payments to creditors holding unsecured loans. These may include credit card companies, second mortgages and other debts.

Lien stripping

Second mortgages are secured debts tied to your primary residence. However, if the amount exceeds the value of the property, it becomes an unsecured debt in the bankruptcy. More information about lien stripping and second mortgages is available on our webpage.

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