What Percentage Would I Repay in a Chapter 13 Lien Strip Where Credit Card Debt is Also Being Settled?

Sarah Miller: Chapter 13 Lien Strip

Sarah earns $12,000 a month and is a commodities trader at the Chicago Board of Trade. Her house in Lincoln Park is worth $500,000, but is subject to two mortgages. The first mortgage is $500,000 and the second is $100,000. Sarah's home is deeply underwater, but she is determined to keep her home. Sarah also has $10,000 in credit card debt. Sarah earns too much money to qualify for a Chapter 7 bankruptcy, and a Chapter 7 bankruptcy won't allow her to recover any value in her home. On the other hand, a Chapter 13 bankruptcy can help Sarah eliminate her credit card debts and also partially restore some equity in her home.

Since her first mortgage exceeds the value of her home, Sarah's second mortgage can be treated as an unsecured asset. Depending on her allowable expenses, Sarah's Chapter 13 plan will repay her creditors over five years, allocating all of her disposable income towards repaying her debts. Sarah's goal is to come up with a plan that repays 10% of her debt over those five years. If successful, she will discharge her $10,000 in credit card debt for $1,000 and her second mortgage for $10,000. Throughout the plan, she will also continue making payments on her first mortgage. By removing the second mortgage, she may see her home return to positive equity over the term of her plan. At very least, Sarah will be at the break-even point, which is much better than being $100,000 underwater.

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