If you want to eliminate a second mortgage through Chapter 13 bankruptcy or another method of debt management, a bankruptcy attorney can help. A second mortgage can be overwhelming, especially if your payments are excessive. However, there is a way to manage a second mortgage or eliminate it through bankruptcy. Contact Law Office of Jack G. Lezman, PLLC to find out how we can help you.
History of the Housing Debt Crisis
Before the American housing bubble burst at the end of 2007, creditors and lenders throughout the nation were doling out mortgages left and right, seemingly to anyone who asked. Creditors gave many of these loans to under-qualified homebuyers. They gave them on the assumption that the housing market would continue to prosper and home equity would continue to rise. Unfortunately, this was not the case. In the wake of the subprime mortgage crisis and the housing market collapse, America experienced one of the worst economic climates in history. As a result, many homeowners found themselves and their homes underwater. This meant that they owed more than their homes were worth.
A weak job market further compounded the financial struggles of many Americans. In the years following the economic downturn, homeowners faced uncertainty, insurmountable debts, and foreclosures. For those who had borrowed against their property and taken out second mortgages or home equity lines of credit, the threat of losing their homes seemed all too real.
Although it appears as if our country has begun to right itself from an economic tailspin, there is still no doubt that the American economy and job market are still recovering sluggishly. It is no secret that foreclosures are still a regular occurrence throughout the nation. In fact, statistics report that in 2012 there were more than 5,000 foreclosures in Mecklenburg County. This equates to more people filing foreclosures every 10 days in 2012 than in the entire year of 2008.
Filing for Chapter 13 Bankruptcy
While foreclosure statistics are certainly alarming, homeowners who face the prospect of foreclosure proceedings should know that you do have options available. Whether this comes in the form of bankruptcy or alternative resolutions will depend on a number of circumstances and your current financial situation. In any case, an experienced Charlotte bankruptcy attorney from our firm can help you determine the most appropriate plan of action you can take to manage your debt and protect your home.
One of the most unique and little-known provisions in the U.S. bankruptcy code is that filing bankruptcy can allow eligible homeowners to discharge their second mortgage. By completing the Chapter 13 bankruptcy process, consumers will be able to structure their debts into a more-manageable payment plan that typically last three to five years. At the end of the payment plan, the bankruptcy court may allow the remaining debt of a second mortgage to be discharged in the same manner as unsecured debts. This means that when homeowners successfully discharge their second mortgage, they will most likely only have to pay their original debt for pennies on the dollar. In addition, when second mortgages are eliminated, lenders are often more inclined to modify mortgages and prevent foreclosures.
Lien Stripping Through Chapter 13 Bankruptcy
Eliminating a second mortgage can take place through lien stripping. Lien stripping is the process that allows you to eliminate your second mortgage in a Chapter 13 bankruptcy. If you are upside down on your house, meaning you owe more than the value of your home, then you may be able to get rid of “junior” liens, which would include second or even third mortgages.
Through lien stripping, the bankruptcy court converts your secured debt mortgage and makes it an unsecured debt. It is no longer tied to your property. Instead, it exists without a lien as does credit card debt.
You can only eliminate a second mortgage through lien stripping if the total value of your liens exceeds the value of your home and property. If your primary or first mortgage is worth more than your home, then any junior mortgages may be lien stripped. If your first and second mortgage are the combined value of your home, then your third mortgage may be lien stripped.
For example, if your house is worth $120,000 and your first mortgage is $150,000 and you also have a $50,000 second mortgage, then the second mortgage may be lien stripped. However, if your first mortgage is $100,000 and your second mortgage is $20,000, then you may only be able to lien strip your third mortgage, if one exists.
Lien stripping is usually only available in Chapter 13 bankruptcy. However, you may be able to eliminate second mortgage through Chapter 7 in a few jurisdictions, or location areas. Alabama, Florida, and Georgia may allow you to eliminate junior liens through Chapter 7. You should consult a skilled bankruptcy attorney to find out about your ability to eliminate a second mortgage and lien strip your loans.
Discharging Your Second Mortgage
Once your second or third mortgage are lien stripped, they are no longer tied to your property. As unsecured debt, they are eligible for discharge through Chapter 13 bankruptcy. Eliminating a second mortgage can take place through your payment plan and discharge afterwards. You may only pay pennies on the dollar of your second mortgage debt.
Your second mortgage would be considered nonpriority unsecured debt. You would roll this debt into your three- to five-year payment plan. Then, you would make payments on your payment plan, and repay a portion of your debt. At the end of your payment plan, you could discharge your second mortgage and you would be able to keep your home.
Chapter 13 cannot discharge all debt. In fact, the payment plan should make debt more manageable. However, a second mortgage is often too much money to repay in three to five years. By lien stripping and paying less than what you owe, you may be able to eliminate your second mortgage.
Discharge Your Second Mortgage With the Help of Our Firm
The amount of debt relief available to people who need it is enormous. In order to successfully obtain a discharge of your debts, and to ensure that your second mortgage can be considered an unsecured and dischargeable debt, you need to work with an experienced legal team. We can guide you through the Chapter 13 bankruptcy process. While our firm can help you determine if you are fully eligible to eliminate your debt through Chapter 13 bankruptcy, your home must be worth less than you owe in order to qualify. If you would like more information about the ways in which you can manage your debts, eliminate your second mortgage, and take control of your finances, contact a Charlotte bankruptcy attorney from Law Office of Jack G. Lezman, PLLC to schedule a free case evaluation.