If you face overwhelming debt in Louisiana and have both a first and second mortgage on your home that you fear you cannot pay, you may be able to save your home from foreclosure via a Chapter 13 bankruptcy. In addition, you may be able to get rid of your second mortgage and the lien on your home held by your second mortgage lender (if you have no equity in your home).
You may not be aware of the differences between Chapter 7 and Chapter 13 bankruptcies. The basic one is that Chapter 7 is a discharge proceeding wherein the court discharges virtually all of your consumer debt, including your credit card debt. But while Chapter 7 can forestall foreclosure of your home, it seldom can prevent it. Chapter 13, on the other hand, is a reorganization proceeding during which you devise a plan to reorganize and pay off most of your debts over a three- or five-year period after the court approves your plan. Again, your mortgage lender(s) cannot foreclose on your home during your bankruptcy period, and the extended period of time gives you the opportunity to get caught up and stay current with your first mortgage payments, thereby saving your home from foreclosure.
Secured versus unsecured creditors
In a Chapter 13 bankruptcy, the court places your creditors in two classifications: secured and unsecured. As you might suppose, the secured creditors are the ones to whom you put up collateral to back your debts. Conversely, your unsecured creditors have no such collateral and consequently have little or no chance to recover their respective debts.
In general, depending on equity, your second mortgage holder could be one of your unsecured creditors. The court therefore may be able to strip away any lien your second mortgage lender holds or claims to hold on your property. At the end of your bankruptcy period, the court discharges your unsecured debts unless they were part of your repayment plan.