What type of debt you have can make a big difference in how bankruptcy can affect your debt.
Generally speaking, unsecured debt is more likely to be dismissed - that is, retired completely - than secured debt.
And, your debt is usually either secured or unsecured, one or the other. So stuff like credit card debt and payday loans are considered unsecured, because there's no property attached to them.
Car notes and mortgages are secured debt, because they are connected to a property.
However, as columnist and attorney Ronald H. Surabian points out in the Burlington Union, second mortgages are a different story. After attending a recent workshop he wrote:
The thing that I found interesting about the Chapter 13 bankruptcy proceedings is that second mortgages, home equity loans and the like can be wiped out if these second mortgages are considered unsecured.
And this is something that we even overlook here. We often speak of how filing bankruptcy may help your credit card debt or mortgage, but we don't often discuss second mortgages.
Perhaps we should be because millions of homeowners have a second mortgage - often taken out to fund home repairs or improvements - and are now struggling to make that extra monthly payment.
So, is your second mortgage unsecured and, therefore, potentially able to be dismissed by filing bankruptcy? Surabian provides a clear example:
Assume the fair market value of your home is $370,000 and you have a first mortgage of $376,000 and a 2nd mortgage of $95,000. The second mortgage will be treated as unsecured and will be treated in the same way as credit cards. It will either be wiped out or paid off for pennies on the dollar.
There you have it. If you're facing foreclosure because of a second mortgage and other debts, then bankruptcy may be able to save your home.
To see if your second mortgage is considered unsecured, speak with a local attorney about filing bankruptcy.