Chapter 13 will help save your home by reorganizing your debt and setting you up with a payment plan to pay back payments and penalties. This plan will stay in effect for 3-5 years at which time the debtor will receive a discharge of the remaining qualifying debt.
A chapter 13 bankruptcy may also help you modify certain terms of your mortgage. If you have both a first and second mortgage and the second mortgage is undersecured, you may be able to eliminate the second through lien stripping. You may still have to make a payment toward the second mortgage but it will be treated the same as other unsecured creditors.
Chapter 7 bankruptcy does not have the power to modify the terms of secured loans such as a mortgage. However, you may be able to renegotiate more favorable loan terms in a reaffirmation agreement. However, most larger lenders are unwilling to modify loans on these terms.
The primary benefit of chapter 7 in relation to a home is that it will stay the creditor from foreclosure while the debtor is in bankruptcy. Thus, many clients file chapter 7 to stop a foreclosure and provide relief from the automatic stay while working with the bank to obtain a loan modification. Oftentimes this is enough time for the bank to review the loan modification and for the debtor to obtain relief.
Both chapters offer tangible benefits for individuals looking to keep their homes.
This post was written by Benjamin Yrungaray
Benjamin Yrungaray handles bankruptcy and loan modification cases at First Source Law. He is a member of the state bars of California (#256224), Pennsylvania (#208558), and New Jersey. He is also admitted in the Central District Court of California, Southern District of California, and New Jersey District Court.
