How to Keep Two Homes in a Chapter 13 Bankruptcy

By Tom Streissguth

A chapter 13 bankruptcy generally allows you to keep your property, unlike a chapter 7 bankruptcy, which involves the liquidation of non-exempt assets. In a chapter 13 bankruptcy, the debtor submits to a schedule of repayments to his creditors. However, there are limits on the amount of secured debt you may carry and still qualify for a chapter 13; your bankruptcy trustee may require that you surrender a second home.

Chapter 13 Eligibility

The federal Bankruptcy Code sets eligibility standards for those filing chapter 13 bankruptcy. As of 2014, the law set limits on the amount of unsecured and secured debt you can have and still qualify. The limit on secured debt -- including mortgages secured by property -- is $1,149,525 as of April 2014. If your secured debts exceed this amount, you would not qualify for a chapter 13 repayment plan.

Mortgages and Foreclosures

Any form of bankruptcy will stop a foreclosure on your property; filing a bankruptcy petition automatically results in a "stay" on any legal proceedings by your creditors such as lawsuits, seizures, levies, garnishments and foreclosures. This includes your principal residence, or "homestead," as well as a second home. If you are behind on mortgage payments, chapter 13 will give you a chance to catch up through a repayment plan, which lasts from three to five years and repays a limited percentage of your outstanding debt.

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Trustees and Repayment Plans

When looking at your repayment plan, the chapter 13 trustee will consider your assets, liabilities and income. He will also take a close look at any real estate you own other than your principal residence. If your second home is not producing net income, then in bankruptcy parlance, it's considered a "drag" on your bankruptcy estate. This is because the money you're spending on mortgage payments, property taxes, maintenance, insurance and other expenses is money that won't go towards your other creditors. For this reason, the trustee can object to your repayment plan unless you agree to surrender the house. If the court agrees with the trustee, and you refuse to surrender the house, you'll have no repayment plan in place -- and the court will dismiss your bankruptcy case.

The 100 Percent Exception

Even if your second home is a net expense, a chapter 13 plan that pays 100 percent of your debts may allow you to keep it. This is a rare exception, however, since you would generally avoid filing for bankruptcy at all if you're able to repay all your debts, even if you need three to five years to do so. A chapter 13 bankruptcy puts a seven-year red flag on your credit reports, places your finances under court supervision and restricts your ability to contract new loans.

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Can You Refuse to Reaffirm a Second Mortgage During Bankruptcy?


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