Chapter 13 – You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.

There are several advantages to filing under a Chapter 13 repayment plan.  One advantage is the ability to strip qualified second mortgages from your home, which lowers your total principal balance you owe on your home.  Another advantage is the ability to repay secured creditors such as mortgage arrears, over time, usually a period between 3 to 5 years.  Chapter 13 can also help you repay non-dischargeable taxes over time, often times interest free. Lastly, Chapter 13 allows you to cram down certain secured debts like your cars to the current market value.


Numerous homeowners have more than one mortgage on their homes. A second or even third mortgage may have been obtained to renovate or add to the home because of a growing family or to increase its value, or the funds were used for college tuition or to pay off medical expenses.

Unfortunately, a homeowner with multiple mortgages may find him or herself in desperate financial straits, or their home has lost considerable value. Crushing debt can also cause emotional stress and endanger family relationships. In times like these, can homeowners still save their homes?


A Chapter 13 bankruptcy, however, has a different effect. Under a Chapter 13 bankruptcy, you must present a repayment plan that is approved by the trustee. Your income under the plan must be sufficient to pay the current mortgage payments and to make up the arrearages over the three or five-year term of the plan. If approved, then you can eliminate your liability to the second and subsequent mortgage holders and strip the liens, if it is a qualified lien.

The second lender becomes an unsecured creditor in bankruptcy because there is no equity remaining. At the end of the Chapter 13 bankruptcy when the plan is completed and a bankruptcy discharge granted, there will be no other liens on the home. To qualify, you will have to demonstrate that its value is less than the value of the original or initial mortgage, which usually can only be performed by a county property appraisal company, an approved certified appraiser, or by declaration. 

For practical purposes, though, a Chapter 7 bankruptcy can probably work just as well if the homeowner is severely underwater, or where the home’s value is far below the amount of the loan.

The stripping rule does not apply to a refinancing, where the a new mortgage pays off the old one. There must be at least two distinct mortgages for a Chapter 13 bankruptcy to effectively render the second mortgage dischargeable.


 There is nothing more annoying than receiving 10-20 phone calls or more every day from creditors, credit card companies, and collection agencies asking you why you have not been paying your balances and threatening legal action unless you begin paying now.

You may have lost your job or had to use your cards to pay off medical bills for an emergency medical situation. Although some credit card or collection agencies may seem sympathetic and try to work out a payment plan, most of these companies only want you to use any means possible to pay them, and to pay them now.

One way to stop harassing phone calls is for you to refer the creditor to the Fair Debt Collection Practices Act, which was passed to prohibit particularly offensive creditor calls. These include threats to put you in jail, of possible bodily harm, of misrepresenting the amount of the debt or that you even owe it, or calling you dozens of times per day at all hours of the day and night. Some creditors pretend to be attorneys or someone else. They cannot call you at work if you tell them it is prohibited by your employer, and cannot use profanity or obscenities. You do have to at least answer one of the calls and advise the caller to stop calling you.


However, if your debt has become unmanageable, you do have the option of filing for either a 
Chapter 7 Bankruptcy or a Chapter 13 bankruptcy. The difference between the two is that a Chapter 7 is a liquidation and will discharge or eliminate unsecured debt such as credit cards, and a Chapter 13 is a debt reorganization. You do have to qualify based upon your disposable income to file a Chapter 7. 

Both filings are similar, however, in that filing either initiates an automatic stay of any legal proceedings, including foreclosures, collection activities, lawsuits, and any contact or attempt to collect a debt.

The automatic stay goes into effect when your bankruptcy petition is filed. When a creditor, collection agency, or attorney calls, you merely advise them that you have filed either a Chapter 7 or 13 and give them the court file number on your documents. At this point, the creditor will stop calling you. There are instances when creditors keep calling, which is a violation of the automatic stay. If this occurs, you should write down the dates of the calls, times, who called, the name of the person who spoke to you, and for which debt they are calling. Then, call your attorney with this information.

A creditor who continues to contact you after the automatic stay becomes effective and the creditor has been so advised is in contempt of a federal court order. Once your bankruptcy case has been granted a discharge and the unsecured debts eliminated, these creditors are permanently enjoined from contacting you. A contempt violation can result in a fine.

There are situations where a creditor can obtain relief from the automatic stay. The most common situation is where a homeowner is in arrearages on the mortgage and the lender needs to continue to foreclose on the property. Other “interested parties” may also obtain relief, usually for secured debts. The bankruptcy code lists situations where a creditor can request relief from the automatic stay and then continue to contact you.