One of the main benefits of filing for bankruptcy under Chapter 13 is most debtors are able to keep their homes and vehicles. Chapter 13 requires a debtor to file a payment plan and then follow the budgeted plan for three to five years. While that is a long time, the benefits far outweigh any inconvenience.
The main benefit of Chapter 13 bankruptcy is the debtor can stop foreclosure, keep a home and pay the arrears on a primary mortgage throughout the bankruptcy while maintaining the regular payments. Additionally, the court may strip down other liens on the property, such as junior mortgages, when the house is worth less than the primary mortgage.
Why does the court allow lien stripping for negative equity? Imagine a situation where a home is sold for $100,000, having a primary mortgage of $105,000 and a second junior mortgage of $5,000. The primary mortgage lender will not get the entire amount of money owed, and the junior lender will get no money at all. Since the collateral securing the loan was sold, the junior mortgage lender is now an unsecured creditor. If the former homeowner then files for bankruptcy, the unsecured debt will be discharged. Chapter 13 allows debtors to reach this same conclusion without having to sell their homes.
Windy City Law Group– Skokie bankruptcy attorneys
