Filing for Chapter 13 after a prior bankruptcy

Many Long Island residents have found that filing for bankruptcy allowed them to get out of a debt trap, and gave them a fresh financial start. However, there are people whose debt problems are such that they need to file for bankruptcy more than once.

For example, a person who files for Chapter 7 can discharge unsecured debt, such as credit card debt, but may exit bankruptcy still behind on secured debt, such as mortgage payments on a home. Falling behind on mortgage payments can lead to foreclosure.

One way to avoid foreclosure is to file for Chapter 13 bankruptcy. There are several limitations on who is eligible to file for Chapter 13, and how much time must have passed between different bankruptcy filings. Nonetheless, many people who have filed for Chapter 7 can later file for Chapter 13. The main difference would be that the person filing for Chapter 13 would not be able to discharge the mortgage debt. Instead, the filer would be protected from foreclosure, while paying the standard monthly mortgage payments as well as debt repayments. In this way, the filer could stay in the home and pay off the delinquent payments over a three- to five-year period without fear of foreclosure.

This strategy would carry some risks. The filer would have to be able to make both the monthly mortgage payments and the regular payments that are part of the repayment plan. Filing for bankruptcy twice may hurt the filer’s credit more than filing once, but there are some advantages. Mortgage lenders have been known to modify mortgages to help borrowers avoid bankruptcy.

Luckily, most bankruptcy filings are not nearly this complicated. Long Island residents looking for a way to get out of debt without losing their homes should get help researching Chapter 13.

Source: FOX Business, “Will Bankruptcy Help Mortgage Modification?” Justin Harelik, June 11, 2013.