Chapter 7 bankruptcy permits a debtor to discharge certain debts.  If a property is lost through foreclosure, any resulting mortgage deficiency can be discharged in Chapter 7.  In the alternative, either a homestead residence, or other property with no equity, may be retained in Chapter 7 so long as the mortgage payments are kept current.  Chapter 7 also discharges unsecured debt, such as credit cards, thus freeing up funds to keep the mortgage payments current. 

Chapter 13 bankruptcy allows a debtor to restructure debt through a monthly payment plan which lasts 3 to 5 years.  Any mortgage arrearages can be cured through the Plan.  A mortgage on an investment property can be “crammed down” and “stripped off.”  This means that the mortgage amount is lowered to the value of the property with just a portion of the stripped off balance being paid over the life of the Plan.  This Chapter 13 mechanism cannot be applied to a first mortgage on a residence.  However, it can be applied to a wholly unsecured second mortgage on a residence.