Mortgage debt is a special type of debt because it is secured by collateral. Your home acts as security, and if the mortgage is not paid the bank can foreclose and take the house. Obviously, this can be devastating to homeowners.
Because the house is collateral, bankruptcy cannot generally result in the elimination of mortgage debt while simultaneously allowing you to keep your home. However, there is an exception to this general rule. There are limited circumstances under which you can eliminate your second mortgage by filing Chapter 13 bankruptcy. The process can be complicated and you will need to speak with an experienced bankruptcy lawyer to help. Ronald D. Weiss, PC can assist you in a Nassau Chapter 13 bankruptcy and help you to find ways to keep your home and reduce the balance due on your mortgage.
A second mortgage is, as its name suggests, not a primary mortgage on your home. If the house is foreclosed on, the lender who issued the first mortgage gets paid first. If there is any money left over after the first mortgage holder is paid in full, then the second mortgage holder gets paid.
For many homeowners who are upside down or who owe close to what their home is worth, their second mortgage is not actually a secured loan. This is because if the second mortgage holder foreclosed on the home and forced its sale, the proceeds would only be enough to pay the first mortgage (and sometimes there would not even be enough to do even that).
The second mortgage holder has a “claim” to the house, but it is virtually worthless because forcing a foreclosure would not actually let the mortgage issuer get its money back from the sale. As such, this debt is truly unsecured debt just like a personal loan or credit card is.
It is possible to have the second mortgage debt re-labeled as the unsecured debt obligation that it is in reality. This can occur in a process called lien stripping, which can be a part of a Chapter 13 bankruptcy. You will need to show that your home is not worth enough to actually give the second mortgage holder a legitimate claim to the house. A bankruptcy lawyer can help you to prove that the second mortgage should be reclassified.
Once reclassified as unsecured debt, the balance on the second mortgage may be included in a Chapter 13 repayment plan agreement. These agreements usually last anywhere from 3-5 years and the money you pay is based on a number of factors including your income. At the close of the repayment plan, the money that remains unpaid on debts is forgiven. This means that you could end up having a part of your second mortgage forgiven.
Ronald D. Weiss, PC can help you throughout your Nassau Chapter 13 bankruptcy including with lien stripping. Call today to speak with a member of our legal team and to learn more.