As in Ch. 7 Bankruptcy, filing Ch. 13 Bankruptcy instantly stops creditors dead in their track by the way of the Automatic Stay.  If one does have the ability to repay all or some of their debt, then a Ch. 13 Bankruptcy could help by setting up a reasonable payment solution.

This is especially helpful if you have a pending foreclosures or auto repossession.  By way of the Automatic Stay, any pending foreclosure will be stopped and put on hold until the debtor can confirm a reasonable repayment plan through the court.  Ch. 13 Bankruptcy, often considered the Homeowner’s Bankruptcy, may discharge the 2nd and 3rd mortgages if they are unsecured.  Discharging the 2nd and 3rd mortgage is called lien stripping.

Chapter 13 Lien Stripping – the Kind of Stripping even your Spouse can approve of!

If you have two or more loans on your real property (typically many people have both a first and second mortgage), and if the second mortgage is “wholly unsecured” (meaning it is not secured by any equity), then you have grounds to try to strip (i.e. eliminate) your second mortgage through a Chapter 13 bankruptcy proceeding.  You will have to get your Chapter 13 plan confirmed, and you will have to make all your payments for 3-5 years and take the case though discharge in order to realize the effects of the lien strip.  If you fail to complete the plan, however, the chapter 13 case gets dismissed for any reason, or you convert to a Chapter 7, the lien will not be stripped, and in essence, it will be revived, potentially with late fees and other charges being tagged on.