In today’s economic conditions, many people have lost their jobs, homes, and health coverage.  Even the most diligent bill payers can find themselves in financial jeopardy.  When you are unable to pay your debts as they come due, you are considered “insolvent”.  Creditors may begin proceedings to foreclose or repossess property or seek to garnish your wages.  Filing a bankruptcy case can help you get a fresh financial start, stopping bill collectors, and getting you back on a more secure financial path.

If you are considering filing for bankruptcy protection, you should learn about your options. For most people, personal bankruptcies are filed under either Chapter 7 (liquidation) or Chapter 13 (payment plan).  A Chapter 7 is the most common type of bankruptcy chapter for personal debts.  In a Chapter 7 case, a trustee is appointed to liquidate your non-exempt assets to pay your creditors. If you receive a Chapter 7 discharge, you will get rid of most unsecured consumer debts.  If you have secured debt (a debt secured by a lien on your personal or real property), such debts may “pass through” your Chapter 7 case, and secured creditors may still seek to repossess or foreclose on those debts after your bankruptcy.  You must also financially qualify to receive a chapter 7 discharge. Bankruptcy courts use a “means test.” The Chapter 7 means test is a complex formula based on your pre-bankruptcy assets, income, which is applied to determine whether or not you have enough money or non exempt assets available to make some payment to your creditors.

A Chapter 13 bankruptcy is different from a Chapter 7 is a lot of ways.  Like a chapter 7, your will also have a trustee appointed.  However, a Chapter 13 trustee does not sell your property to pay your debts.  A Chapter 13 bankruptcy trustee uses your wages/income to pay back your creditors pursuant to a plan (which must be confirmed by a bankruptcy judge) over a period of 3 to 5 years.  In your plan, you can propose terms for repayment of your debts, paying substantially less than your actual debt, depending on your income, assets, and the kind of debts being discharged. If you provide for payment of debts on your home or other secured debts, a Chapter 13 can help you prevent foreclosures and repossessions, allowing you to get your secured debt payments current.

A Chapter 11 bankruptcy is also an option for personal bankruptcy.  In a Chapter 11, you are a “debtor in possession” and essentially act as your own trustee.  Unlike a Chapter 13 case, there are no debt limits to file a Chapter 11 case.  If you have income generating real estate or personal property that generates money, you potentially could have the property removed from you by your creditors in a receivership.  Receiverships are generally done without your consent and places a receiver hired by your creditor in control of your property. But if you file a Chapter 11 bankruptcy, you would be in charge of your assets.  You can propose a Chapter 11 plan for repayment of your debts; however, creditors have the right to vote on your plan or propose their own plan for payment of your debts too.

Which Chapter is best for you? Contact a knowledgeable bankruptcy expert to discuss your options and get your financial fresh start today.

A bankruptcy can help you settle a second mortgage debt. In either a Chapter 13 or Chapter 11 plan, you may be able to eliminate a second mortgage if it is wholly unsecured.  What does it mean to be “wholly unsecured”?  When the value of your home is equal to or less than what you owe on your first mortgage, your second mortgage is considered wholly unsecured.  For example, assume you have a $300,000 first mortgage and a $100,000 second mortgage.  The current value of your home is $250,000. The second mortgage is wholly unsecured because the value of the home does not exceed the first mortgage lien.  Because of the upheaval in financial and real estate markets, it may be likely that your second mortgage is wholly unsecured.  If there is a third mortgage on the property, you may also be able to eliminate that lien on the same “wholly unsecured” basis described for second mortgages.  This bankruptcy process is commonly referred to as “lien stripping” and can save you hundreds of thousands of dollars!

In order to eliminate your wholly unsecured second mortgage in bankruptcy, you should seek a knowledgeable bankruptcy expert to guide you through the process. In addition to filing your petition and complying with bankruptcy rules, that expert can file a motion to value collateral, the collateral being your home.  The second mortgage lienholder must be properly notified of your motion and must have an opportunity to object to the motion.  A bankruptcy expert can help you through any hearing determining the current value of your home – a critical step to eliminating a wholly unsecured second mortgage.  When your motion to value collateral is granted, your second mortgage will be an unsecured debt, treated in the same priority as a credit card debt.  Generally, such debts receive less in a Chapter 13 or 11 plan than other claims for priority or secured debts.  And the best part is when you complete your bankruptcy plan payments, your wholly unsecured second mortgage will be gone!

You might ask yourself – what’s the catch?  This seems too good to be true.  There is one catch – you need to complete all your Chapter 13 or Chapter 11 plan payments under the terms specified under your plan.   If your bankruptcy case is dismissed without a discharge for any reason or your get a discharge without completing all plan payments, you will lose the benefit of lien stripping, and your second mortgage will remain attached to your home. Moreover, all your other debts spring back too. So if you are considering filing bankruptcy, you need to be committed to your required plan payments over the life of your bankruptcy plan (typically three to five years.)  If you have a steady income and can commit to making all your plan payments, you not only get the benefit of stripping your second mortgage, you also have a fresh start with a discharge of many of your pre-bankruptcy debts.  So contact a knowledgeable bankruptcy expert to discuss your options and get your financial fresh start today.