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.

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.

Get a free, confidential bankruptcy evaluation. Learn More

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.

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.

Get a free, confidential bankruptcy evaluation. Learn More
What Happens When a Bank Charges Off Your HELOC After a Chapter 7 Discharge?

References

Related articles

Can a Primary Residence Be Seized if You File for Bankruptcy?

Although filing for bankruptcy can help avoid being overwhelmed by debts, you may not be able to keep all your assets. This depends on the type of bankruptcy you file and whether you take the necessary steps to keep your home. However, your situation may require you to consult with a bankruptcy attorney if it’s too complicated to make these decisions on your own.

Ways to Prevent the Loss of Your Home in Chapter 7 Bankruptcy

U.S. bankruptcy law serves two purposes. The first is to give people an opportunity for a new start by wiping away some or all of their debts. The second is to ensure creditors are treated fairly. If you are in jeopardy of losing your house, Chapter 7 bankruptcy offers you an opportunity to slow down the foreclosure process and catch up on your late mortgage payments.

How to Reduce Your Mortgage in a Chapter 13

When people file for Chapter 13 bankruptcy, their debts typically exceed their monthly income and they can no longer pay their mortgage and other bills. Fortunately, in filing for bankruptcy protection, consumers can reorganize and pay down their debts and possibly reduce their overall mortgage liability.

Related articles

What Is Not Exempt Under Chapter Seven Bankruptcy?

When you file for chapter 7 bankruptcy, you put your financial affairs into the hands of a federal court and a ...

Can You Refuse to Reaffirm a Second Mortgage During Bankruptcy?

Although you've filed for bankruptcy, it is still possible to keep your home despite having a second mortgage on the ...

Can a Bankruptcy Trustee Take Possession of a Home From a Lender?

Bankruptcy can give you a fresh financial start, but under Chapter 7 bankruptcy procedures, a court-appointed trustee ...

What Happens if a Bank Discharges a Home Loan During a Bankruptcy?

At the end of a bankruptcy case, you will receive a bankruptcy discharge that relieves you of all financial obligations ...

Browse by category
Ready to Begin? GET STARTED