If you have both a first and second mortgage on your home and face foreclosure because of your overwhelming debt situation, you may well wish to consider filing Chapter 13 bankruptcy instead of Chapter 7. Why? Because while you can forestall foreclosure via Chapter 7, you cannot prevent it.
Chapter 13, on the other hand, can not only prevent foreclosure, but can also completely relieve you of your responsibility to pay off your second mortgage. SFGate.com explains that lien stripping represents one of the Chapter 13 benefits that most people are unaware of.
As you may already know, Chapter 7 discharges virtually all of your debts. Conversely, Chapter 13 gives you the opportunity to reorganize and restructure your debts and then pay them down or off over a significant period of time, usually three or five years. The court ultimately discharges only a few of them.
After filing for Chapter 13, you place all of your creditors into either the secured or unsecured category. Your second mortgage holder represents an unsecured creditor. When you write your repayment plan, you have no obligation to include your unsecured creditors in it. Your best interests dictate that you not mention your second mortgage holder in this plan.
Once your bankruptcy comes to an end, the court discharges all the unsecured debts you did not mention in your plan, including the holder of your second mortgage. If your second mortgage lender put a lien on your home, the court can also strip that lien away. Thus, your second mortgage has completely “gone away” and your second mortgage holder can do nothing to make you pay him or her.