Chapter 13 is famous for two things. Saving Homes and Being Complicated.
In the short term, chapter 13 can stop foreclosures and other creditor actions (much like a chapter 7). However, unlike a chapter 7 bankruptcy, chapter 13 bankruptcy involves a plan of getting caught up with your creditor, namely your mortgage. The automatic stay that stops foreclosure is great but temporary. What is special about chapter 13 is the long term plan that gives you the room you need to get back on track and keep your home.
Given the complication of chapter 13 bankruptcy, it is really vital that you have not just an ordinary bankruptcy lawyer, but a really good bankruptcy lawyer who is experienced with chapter 13 bankruptcy.
If you have had a hardship gotten behind on mortgage payments. Chapter 13 could be the solution for you. You want to keep your home but you need time to catch up with the unpaid back mortgage payments (called mortgage arrears). Sometimes the banks are so aggressive that they make it impossible for people who could otherwise afford their mortgage to stay. Chapter 13 bankruptcy is for these situations.
Lets say your monthly mortgage payment is $3,000 and you are six months behind on payments ($18,000). Your bank is giving you some impossible catch-up plan where you have to pay $5,000 per month for nine months. You can’t afford it. Chapter 13 is your solution. So long as you can afford the chapter 13 plan payments, you can pay your regular mortgage and pay the $18,000 arrears over a FIVE YEAR PERIOD. That means you pay your mortgage and you pay an extra $300 per month in a chapter 13 plan. You can get caught up and keep your home.
Now imagine you also have $30,000 in credit card debt, but you can only afford to pay $300 per month in your plan. You might ALSO be able to totally eliminate your credit card debt in addition to saving your home!
Get Rid Of Your Second Mortgage
Another way Chapter 13 bankruptcy is great is that it sometimes enables you to strip (remove) a second mortgage. This is very complicated and again requires a real expert. Many chapter 13 bankruptcy attorneys don’t even know how to do this! Any of my attorneys in New York or New Jersey will be happy to look at your situation and tell you if this is something that can be done for you.