Second mortgages, often in the form of a Home Equity Line of Credit (or HELOC) is an effective tool to use the equity in your house to make home improvements or pay for other expenses. However, if you find yourself in financial distress, the extra mortgage payment may take a serious toll on your budget. Chapter 13 bankruptcy, under the right conditions, can avoid or strip off a second mortgage. Former clients have chosen to file a Chapter 13 bankruptcy over a Chapter 7 Bankruptcy for this very reason – only with a Chapter 13, if the conditions are right, can a second mortgage be eliminated. The nature of the lien is converted from a secured debt to an unsecured debt and is dischargeable in a Chapter 13 bankruptcy.
Rules in Place that Must be Met to Eliminate Second Mortgage in Chapter 13 Bankruptcy
In order to avoid or eliminate a second mortgage in a Chapter 13 bankruptcy certain requirements must be met. First, the market value of your home must be less than the amount of your first mortgage. If the primary mortgage loan amount exceeds the fair market value of your home, then a second (and if there is a third) will be in a position to be avoided in a Chapter 13 bankruptcy case.
If your first mortgage loan exceeds the fair market value of your home, and you have a second (or even third) mortgage loan, you may be able to avoid it in a Chapter 13 Bankruptcy case. Please call us today at (541) 762-1967 to schedule your free 60-minute strategy session Eugene.
Bankruptcy Lawyer in Lane County Helping to Eliminate Second Mortgages
Second mortgages, often in the form of a Home Equity Line of Credit (or HELOC) are an effective way to borrow against the equity on your home. These can be used to make home improvements or get you out of a jam if you’re in between jobs. However, if you find yourself in a difficult position financially, making a second payment on your home can take a serious toll on your budget.
Under the right conditions, Chapter 13 bankruptcy can avoid or strip off a second mortgage. Former clients of mine have chosen Chapter 13 over Chapter 7 for this exact reason. Below, we’ll discuss how Chapter 13 bankruptcy can strip off a second mortgage and the conditions required for that to work.
What is a Second Mortgage?
When you take out a home equity line of credit, a second lien is placed on your home. This lien is subordinated to the principal lien and your principal mortgage placed on your house. In other words, it has a weaker claim and for that reason, is called a junior mortgage.
Requirements for Eliminating a Second Mortgage in Chapter 13
To avoid or eliminate a second mortgage in Chapter 13, there are a few requirements that must be met. These are discussed below:
1.The market value of your home must be less than the amount of your principal mortgage.
2.The second mortgage is completely underwater and not secured by any equity at all.
To put it another way, the amount you owe must be greater than the value of your home rendering the second mortgage wholly unsecured by the value of the house.
This happened quite frequently during the housing crisis, but it is less common now as the housing market continues to climb. Still, there are some circumstances where this could work to your advantage.
Lien Stripping in Chapter 7
Currently, there are only a few jurisdictions that allow lien stripping in Chapter 7. Those are in the southeast parts of the United States, namely, Florida, Georgia, and Alabama.
Talk to a Lane County Bankruptcy Attorney
If you have any questions about how to go about saving your home when you’re struggling to make payments, talk to Tom at Butcher Law Office, LLC. Give us a call at (541) 762-1967 to schedule your free 60-minute strategy session in Eugene, OR.