Can Bankruptcy Help Me Get Rid of a Second or Third Mortgage on My Home?
The financial crisis of 2007 may be long gone and the economy may be slowly improving, but that doesn’t mean that all of the financial scars from the difficult time have healed. For instance, in the heady days before the Great Recession, a number of homeowners borrowed against the value of equity in their homes, taking on a second or even a third mortgage. It is also possible that following the recession, homeowners have taken on additional loans backed by the value of their home.
However, financial reversals can occur for a variety of reasons. Perhaps the loss of a job, a medical emergency, or the onset of a disability caused the financial issue. Regardless of the reasons for debt, people typically want solutions for their debt problems. The bankruptcy lawyers of The Bankruptcy Group can work with you to explore potential solutions to your debt. To schedule a no-obligation confidential bankruptcy consultation call 1-800-920-5351 today.
Chapter 7 Bankruptcy or Chapter 13 Bankruptcy?
The two main forms of consumer bankruptcy are Chapter 7 and Chapter 13 bankruptcy. Chapter 7 bankruptcy is sometimes referred to as straight bankruptcy. Under a Chapter 13 plan, the nonexempt property you own can be sold by a trustee to raise proceeds to satisfy creditors. However, bankruptcy exemptions, meaning the property you can keep, are rather strong in California. So even if you take the Chapter 7 route, you should be able to keep a good deal of property and assets. Further, upon a grant of discharge by the court, your unsecured debt is eliminated.
Still, with a second or third mortgage, there is a good chance that you had significant equity in your home in excess of bankruptcy exemption limits. While negotiating with the lender is always an option, let’s assume this has failed and the lender is unwilling to reach an agreement outside of bankruptcy. The ultimate goal is to keep your home. In this case, a Chapter 13 payment plan may be the right choice for you.
The payment plan through a Chapter 13 bankruptcy typically allows you to keep your secured property, including a house or car. While the plan does take more time to satisfy–since it can run for three to five years–Chapter 13 does provide for powerful debt elimination tools. One of these potential tools is lien stripping.
Understanding Chapter 13’s Lien Stripping Power
If you have multiple mortgages on your home, lien stripping may be able to help. Lien stripping means that in certain cases, junior loans like second and third mortgages can be removed from your property and reclassified as unsecured loans. Lien stripping is available only when the value of your home is less than that of the first, or senior, mortgage. Many people describe this situation as the homeowner being “underwater.”
To illustrate, imagine that you have a home that is currently worth $250,000. When you purchased the home, it was worth significantly more, so you took out a mortgage of $300,000. Under these facts, you’d be able to strip the second mortgage and treat it as unsecured debt. Since unsecured debt receives the lowest repayment priority under a Chapter 13 plan, you could realize significant savings.
However, under the same fact, if the home value should increase to $300,001, then you would be unable to strip the second lien. If you have a third or even a fourth mortgage, it would still be possible to strip these liens, but these scenarios are less common than a second mortgage.
Explore Your Options to Deal With a Second or Third Mortgage with Experienced Bankruptcy Attorneys
Since reaching certain agreements with creditors can have significant effects on your debt, it is wise to leave negotiations with lenders to a professional. For instance, it is possible to reaffirm a debt and become legally liable for it once again, even if it was previously outside of the statutory collections period. But, if you have attempted to negotiate with creditors without success, they may be more responsible to a bankruptcy attorney because hiring an attorney can show that you are serious about fighting the debt. At this point, they may account for the costs of a bankruptcy filing, including the possibility that they would receive significantly less than face value of the loan.
If you are seeking ways to deal with debt including a second or third mortgage, contact the lawyers of The Bankruptcy Group today. To schedule a confidential, no-obligation consultation to discuss how bankruptcy can work for you, call 1-800-920-5351 or contact us online today.