You are facing financial difficulties and you need a solution. Because everyone has a unique set of circumstances, we will use an example to illustrate.

Let’s assume that you own a home worth about $500,000.00. There is a first TD with a balance of $550,000, and there is a second TD with a balance of $100,000. You are behind in mortgage payments for many months. You also have $80,000 in unsecured debts, including credit card debt. Also assuming that your family income is less than median ($62k for family of 2 and $67.5k for 3, etc.). What are your options?

item intro 4 sOption 1. If you do not want to keep your home, feel that it is under water, and there is little chance that the negative equity will turn positive anytime soon, you may want to consider filing a chapter 7, wiping out all unsecured debt, walk away from you home and the associated mortgage obligations and start anew.

Option 2. If you want to keep you home, you may consider filing chapter 13 to stop the foreclosure, if any, and to propose a payment plan to pay off the arrearage over 3 or 5 years while continue making the regular mortgage payment s on the first TD. The second TD can be stripped off by filing a motion or adversary complaint in the Bankruptcy court, re-classify the 2nd TD as unsecured debt. Depending on your income and expenses, you may not have sufficient disposable income to pay back any of the unsecured debt. If your disposal income is sufficient only to pay the arrearage and mortgage, a zero percent plan can be proposed.

Option 3. Debt consolidation plan outside of bankruptcy court will work but only rarely. Even though it may sound better than filing bankruptcy, but the fact that the plan does not stop foreclosure or stop creditors from suing you and stop interest from accruing mean that many such plan fails at the first sight of trustee sale or a lawsuit. Also because the first several payments usually go to pay the service fee of a consolidation firm, your creditors will not see payment go to them any time soon. Without an automatic stay protection of the bankruptcy court, the success of this option is far from certain.

There are other options available such as defending a lawsuit, settle debt individually or filing Chapter 11 for individual with large amount of secured and unsecured debt.

Disclaimer: Materials on this website have been prepared by Lo & Lo LLP for general informational purposes only. They are not legal advice. The transmission and receipt of information, through viewing, printing, e-mail or otherwise, is not intended to create or constitute an attorney-client relationship. Persons should not rely or act upon the information without seeking professional counsel. If these materials are not consistent with the rules governing attorney communications in a particular state, and the materials result in client contact in the state, Lo & Lo LLP will not assume the representation of clients from those states. The materials contained herein do not constitute an offer to represent you. These materials may be considered advertising not complying with State Bar requirements in your state. 

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