How To Eliminate A Second Mortgage In Chapter 13 Bankruptcy
You may have wondered how you can get rid of a second mortgage that you cannot afford to pay. Is it even possible to get rid of a second mortgage? If you file under Chapter 13 of the Bankruptcy Code and you meet the requirements to modify the rights of the mortgage holder, you may be able to get rid of your second mortgage by valuing the lien at zero. However, the critical element of succeeding on a motion to get rid of a second mortgage is the value of your home.
In order to strip the lien of a second mortgage in chapter 13 bankruptcy, the value of your home must be less than the payoff on the first mortgage. If there is equity in your home above the payoff of the first mortgage, you cannot value the second mortgage at zero. For example, if your home is valued at $100,000 but the payoff on your first mortgage is even $1 less than the value of the home, you cannot get rid of a second mortgage in Chapter 13 bankruptcy. However, if the payoff on the first mortgage is over $100,000 (the value of the home), you can value the lien of the second mortgage at zero.
What Does That Mean?
Valuing a second mortgage at zero means that the debt will be treated as unsecured debt. In turn, the mortgage lender will receive the same percentage of distribution as your other unsecured creditors (i.e. credit cards and medical bills). Therefore, if your bankruptcy plan provides for a 10% payment to unsecured creditors, the second mortgage lender will receive 10 cents on the dollar.
When you complete your bankruptcy plan, the remaining balance of the second mortgage will be discharged and the lien against your home will be released. You will not be responsible for repaying any of the discharged portion of the debt.
Calling the Right Attorney
Not all bankruptcy attorneys have the experience required to remove a second mortgage in chapter 13 bankruptcy. To learn more about eliminating your second mortgage or home equity line of credit call Sonoma County bankruptcy attorney Michael Benavides. She can explain the process and evaluate your likelihood of success.