Chapter 13 Bankruptcy is a good option when you have a second mortgage or HELOC that can be eliminated.

An excellent reason for a client to file a chapter 13 bankruptcy rather than a chapter 7 is to strip off and eliminate a second mortgage. In order for this to work the home must be worth less than the first mortgage. I have been able to assist many clients in removing their second mortgages in bankruptcy. This housing market provides many opportunities to strip loans from depreciated homes.

I was recently able to eliminate a second mortgage for a client who originally wanted to just file a chapter 7 and keep paying their first and second mortgage. Their second mortgage was approximately $40,000. The client was skeptical at first because, like many people, they heard that chapter 7 is better than chapter 13. In the end I was able to get a plan confirmed where their monthly payment (including attorney fees) is less than their second mortgage payment was, and they will be paying that for fewer than five years rather than 25 years to repay the second mortgage. I saved the client well over $35,000.

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