Chapter 13 is commonly known as the wage earner or pay back plan and is typically filed for one of five compelling reasons:
Foreclosure/Save the House
Debtors have fallen behind in their mortgage to a degree where a foreclosure sale is imminent. Chapter 13 allows the debtors to cure the mortgage arrears over the next 3-5 years while resuming their regular monthly mortgage payments. Debtors must show that have regular income and sufficient income to resume their regular monthly mortgage payment and cure the arrears over the next 3-5 years.
Asset/Excess Equity in Property
Save property that would have been liquidation/sold in a Chapter by paying back the excess equity over 3-5 years versus in a lump sum in a Chapter 7.
Chapter 7 was filed in the last 8 years
Chapter 7 protection is available once every 8 years; however, a Chapter 13 can be filed at any time after a Chapter 7. Limited relief is available when filing a Chapter 13 within 4 years of a prior Chapter 7.
Debtors have a significant income and can afford to pay something back to their creditors over the next 3-5 years. Whatever that excess income is, after subtracting reasonable and necessary living expenses (i.e., rent/mortgage, food, utilities, insurance…) is paid monthly in the Chapter 13.
Second Mortgage is unsecured
If your home is worth less than the balance owed on the first mortgage, a second or junior mortgage can be avoided and paid as a general unsecured creditor with no interest.