Can a Chapter 13 be converted to a to a Chapter 7 if a second mortgage was stripped?

We filed for Chapter 13 a few months ago and had a second mortgage stripped, and kept our house. Our bankruptcy was confirmed, and we have been making the payments. However, we have aquired thousands of dollars in medical bills recently, and my husbands job will likely be lost in the next few months. I am on unemployment, and struggling to find employment. We are barely getting by, and we have small children. We are positive that we will not be able to continue make the chapter 13 repayment payments. Can we possibly convert our 13 to a 7 and keep our home, AND not get the second mortgage back? Our home has no equity in it above the mortgage, and we have two cars. One valued at $2400 and the other at $10000. No other assets.
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Answers (2)

Craig Dennison Robins

Craig Dennison Robins

Contributor Level 6
You have a rather involved situation and based on the limited information given, it is impossible to give a complete answer.

The starting point is to look at the court order which granted your cram-down. Most cram-down orders provide that the mortgage lien is not removed until the successful conclusion of the Chapter 13 case. However, it is possible that yours does not contain such language, in which event you could convert to Chapter 7.

The second issue is to look at how your Chapter 13 plan was calculated. If your plan was based on paying creditors the value of non-exempt assets, you may be able to amend your plan or even let your case get dismissed and then file a new Chapter 13.

The only way you can really get good advice as to what is best is to consult with a qualified bankruptcy attorney in your area. Since I presume you used a good attorney to file your existing case and bring your cram-down proceeding, I suggest starting with that person.

Good luck.

There are a number of posts about cram-downs on my bankruptcy blog. You can see it by clicking the blue link:
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Michael D O'Brien

Michael D O'Brien

Contributor Level 4
Although the other Answer posted is correct in advising you to look at the Order I can tell you from practicing in Oregon and helping people with lien strips that it is extremely unlikely that you would be able to convert to a 7, keep your home AND discharge the junior mortgage. The US Supreme Court decided a case about 17 years ago that eliminated the ability of bankruptcy courts to strip off junior liens in chapter 7 cases. In addition, in this District the Judges are completely on top of the issue and every Order I have submitted in lien strip cases provides that the lien will be removed ONLY upon successful completion of a chapter 13. You cannot strip off the lien after conversion, nor even if you are granted a "hardship" discharge in chapter 13 - you must complete your plan.

Sorry to be the bearer of bad news.
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