At the time, you may have thought taking out a second mortgage on your home was a financially smart and strategic choice. You may have found yourself in a place with a strong financial footing to tackle a new home improvement project. Or, you may have wanted to access cash to consolidate high-interest debts or pay for other large expenses, all while keeping a favorable interest rate on your first mortgage. Regardless, you may regret that decision and find yourself in a financially critical situation, as serious as facing a Chapter 13 bankruptcy filing. Well, follow along to find out whether you can get rid of your second mortgage with this filing and how a proficient Rockland County Chapter 13 bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., P.C., can help you successfully execute this.
Can I get rid of a second mortgage in Chapter 13 bankruptcy?
Chapter 13 bankruptcy is also commonly referred to as a wage earner’s plan or reorganization bankruptcy. This is because debtors are ultimately expected to repay their debts over time in exchange for getting to keep their assets. However, this name may be misleading in regards to your second mortgage. That is, it may be possible for you to get rid of your second mortgage through a strategy known as lien stripping.
With lien stripping, you may be able to reclassify your second mortgage as an unsecured debt. But this is only true if your home’s value is less than the amount owed on your first mortgage. This is because, in this case, your home may be underwater, in that you owe more than what it is worth, and therefore, there is no equity in the property to secure it. With that, your second mortgage may be treated the same as a credit card debt, medical bills, personal loans, utility bills, etc.
When you convert your second mortgage into an unsecured debt, collateral may no longer be tied to it. In other words, your creditor may no longer have the legal right to pursue collection activities against you and attempt to seize your home if your second mortgage remains unpaid. Again, this goes back to the ideal part of opting for a Chapter 13 bankruptcy case rather than Chapter 7, getting to keep your high-value assets like your home during and afterwards.
How do I successfully execute lien stripping in my Chapter 13 bankruptcy case?
You must understand that stripping your second mortgage is not automatically granted to you once you file for Chapter 13 bankruptcy. Rather, you must first properly execute your three- to five-year repayment plan. You generally do have to include unsecured debts, like your second mortgage, in this repayment plan. But you may not have to pay them in full, as after these three to five years pass, any remaining unsecured debt balances may be discharged.
If you have made it this far, please do not hesitate to seek further information from a talented Rockland County bankruptcy attorney. The team at The Law Offices of Allen A. Kolber, Esq., P.C., is willing and able to guide you through your future legal processes.
