If you have little or no equity in your home and are in danger of losing it to foreclosure, Chapter 13 may offer a solution. Under Chapter 13, second mortgages, third mortgages, and even some judicial liens and judgments can be “stripped” from a debtor’s primary residence if the debtor qualifies under bankruptcy law. There are strict rules to follow, and each situation is different, so it is important that you consult an experienced Chapter 13 bankruptcy attorney before deciding on a course of action.
When a second or third mortgage, or lien, is “stripped” from your home, it does not instantly vanish. Rather, it is converted into unsecured debt, which means it will be included with all your other unsecured debts in your Chapter 13 three-to-five year repayment plan. As a practical matter, most Chapter 13 bankruptcy plans only require repayment of a small percentage of what is owed to all unsecured creditors. After you have made all payments required by your plan, any unsecured debt remaining is forgiven.
“Lien stripping” begins at the start of a Chapter 13 case. [Read more...]
Bankruptcy can provide tremendous relief to people weighed down with overwhelming debt, but the rules are strict and must be carefully followed. Even innocent mistakes can delay your bankruptcy, deprive you of some of bankruptcy’s benefits, or even cause the judge to dismiss (throw out) your bankruptcy case. Here are the worst bankruptcy mistakes people make, and how you can avoid them.
The automatic stay forbids almost all of your creditors (there are a few exceptions) from doing anything to collect a debt from you. Creditors can’t ask you to make a payment on your account. They can’t call or write you about a debt, repossess your property, send you any bills or draft your bank account. Wage garnishments must be stopped. If a creditor knows about the stay and ignores it, the creditor may be held in contempt of court. Any personal property that is repossessed after the stay comes into existence must be returned to you. If you have filed for Chapter 13, co-debtors on consumer debts are also protected by the automatic stay.
In Chapter 7, the “fresh start” bankruptcy, most retirement plan savings are not counted as part of your assets and so cannot be used by the trustee to pay any of your creditors. In Chapter 13, in which you keep your assets but make a once-a-month payment for three to five years to reduce or eliminate most debts, most retirement plan savings are not taken into account when the court calculates how much money you have available to pay creditors each month. These rules only apply to the money which stays in your plan. There are different rules for payouts you receive from your retirement plan. 
Bankruptcy can offer a path back to financial stability for people with overwhelming debt. However, bankruptcy is not right for every situation. Some people do not qualify for bankruptcy; others have only a type of debt, such as a first mortgage or recently-incurred tax debt, that cannot be discharged in bankruptcy. 
There are two types of bankruptcy (Chapter 13 and Chapter 7), two types of car payments (loans and leases), and choices to be made in each situation. Each of these plays a role in whether and how you keep your car. 
