Your income used to be enough to live on, but lately, it seems as if you have more bills than you do paycheck. The idea of declaring bankruptcy may seem appealing, but you love your house, and losing it is just not an option. Filing Chapter 13 bankruptcy allows you to catch up on your bills through a repayment plan that focuses on helping you keep your assets such as your home and your car.
But what about the second mortgage on your home? If you do not make enough to include that debt in the repayment plan, will it result in the repossession of your house? The answer is probably no.
Secured vs. unsecured creditors
You must provide a detailed inventory of your income, debts and living expenses, so the court can discover how much of a payment you could realistically make each month and still have enough money left to live on. This may mean that some of your debts go unpaid and eventually become discharged. To determine priorities for repayment, the court creates two categories for your creditors: secured and unsecured.
Secured loans involve collateral. Your house and your vehicle are likely secured loans, which means that if you default on the loan, your creditor can repossess the item. The creditors who provided you with unsecured loans did so without requiring collateral. This includes debts such as credit cards and some personal loans.
Your second mortgage is an unsecured loan, especially if you do not have much (or any) equity in your property. Therefore, the court may strip the second mortgage lien holder. When you complete the bankruptcy repayment plan, the judge discharges the debts not included in it, effectively eliminating your second mortgage.