Can you discharge your Second Mortgage in bankruptcy, and still keep your home?
Many Americans are now in the position where their home is worth less than what they owe on it. In some areas, homeowners are seeing drops in value from 30% to 50%. In desperation, some homeowners have made the calculated decision to simply walk away from their homes. But what if there was a way to wipe out your second mortgage? Think of the money you would save, and the equity you could build back in your home when the market recovers. Bankruptcy laws allow for modifications of certain debts including auto loans, student loans, and second mortgages.
The process is called “stripping” the lien. Under Chapter 13 Bankruptcy rules, if you’re the value of your home falls below the loan amount for the property, the second mortgage becomes unsecured debt, which can be dismissed in bankruptcy.
Here is an example. Say your home is now worth $300,000. It used to be worth $450,000. Your first mortgage is for $300,000. Your first lender is secured by the property value. If you have a second lien for $100,000, it isn’t secured by the current property value. This means it is technically an unsecured debt. Furthermore, the lien-holder can be considered an unsecured creditor in bankruptcy court.
To accomplish this it is extremely important that you are working closely with an experienced bankruptcy lawyer. Bankruptcies can be complicated, and the stakes are high. What is, or is not accomplished in your bankruptcy can had a lasting impact on you and your family for years to come.
Of course this remedy necessitates the filing of a Chapter 13 bankruptcy action. The aim of a Chapter 13 is to allow the debtor to reorganize and if able, to repay some portion of their debts. However, if that second mortgage has to go, this is the way to do it.
If your home is under water, due in part to a second lien or mortgage, your attorney will arrange for a formal appraisal of the home, prior to filing your bankruptcy. He will then file a proceeding to request a hearing where the lien will be removed from the property. If it is granted, the court will issue an order directing second deed of trust holder to remove the lien.
Chapter 7 works differently. A Chapter 7 only discharges unsecured debt, while a Chapter 13 provides a repayment plan. The debtor will use available income to pay off creditors within a specified period of time.
Bankruptcy does have its downside, and it will affect your credit rating. However depending on your circumstances, this may be a small price to pay for the ability to get a fresh start, and possible equity in your home through a “lien strip”.
If you are contemplating filing bankruptcy it is important to contact a qualified bankruptcy lawyer. There are many details to attend to and potential pitfalls to avoid. It is important to weigh the positive vs. the negative impact of filing for bankruptcy.
Attorney Paul Allen can help you in all areas of bankruptcy, loan consolidation and debt consolidation matters. He will help you and your family gets the fresh start you deserve.
There are two convenient locations to serve you, and consultations are free: Glendale 818 334-5445 or 818-552-4500 and Cerritos 562-356-9931 or 562-865-4480. Call today, get answers tomorrow.
(This article is for information purposes only, and does not necessary reflect the company’s opinions and views on general issues. We make no warranty, prediction nor representation, nor do we assume any legal liability for the completeness of any information and its effect on any case. Each case is different and results depend on the facts of each case. Consult with and retain counsel of your own choice if you need legal advice.)