Bankruptcy can help debtors to get rid of many kinds of problem debts. If you file for Chapter 7 bankruptcy, you will have eligible debts discharged after creditors receive funds generated from a sale of non-exempt assets. If you file for Chapter 13, eligible debts will be discharged after you complete a three-to-five year repayment plan that creditors must approve as part of the bankruptcy.
Unfortunately, not all types of debts can be eliminated in a bankruptcy filing. If you have a mortgage on your home, the home is collateral for the debt and you cannot just discharge the balance due on the mortgage. Instead, you are generally going to need to catch up on late payments, make a new promise to pay your mortgage lender, and remain current on the mortgage debt if you wish to keep your home.
There is, however, a limited exception in cases where you have a second mortgage and you file for Chapter 13 bankruptcy. An experienced bankruptcy lawyer at the Law Office of Ronald D. Weiss, P.C. can help. Call today to speak with a member of our legal team and learn more.
Removing a Second Mortgage
Second mortgages can be removed as part of a Chapter 13 bankruptcy, but only if the home is not worth enough to serve as collateral for the second mortgage.
When a home is serving as collateral for mortgage debt, the lenders may foreclose on the house if the homeowner stops making payments. The home will be sold and the money then used to repay the mortgage debt, plus costs associated with foreclosing.
However, when there are multiple mortgages on a home, the first mortgage holder has the primary claim to the proceeds from the sale of a home. This could mean that a second mortgage lender forecloses and ends up getting no money at all. For example, if a home was worth $150,000 and the debtor owed $155,000 on the first mortgage and $20,000 on the second mortgage, this would be a case where the second mortgage holder would get nothing. The entire proceeds from the sale of the $150,000 home would go towards repaying the $155,000 first mortgage.
Under these circumstances, the second mortgage is not actually a secured debt since the home is not really collateral. A debtor who has filed Chapter 13 can thus seek a process called lien stripping in which the second mortgage is reclassified as unsecured debt. The unsecured second mortgage debt can thus be included in a Chapter 13 repayment agreement along with credit card balances, personal loans and other debt for which there is no collateral.
Removing a second mortgage in bankruptcy can be invaluable for some homeowners since it makes it possible for them to keep their homes. Call the Law Office of Ronald D. Weiss, P.C. today to speak with a member of our legal team and to learn if there is a way you can use bankruptcy to remove your second mortgage.