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?

Option 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.