Chapter 13 Bankruptcy and Getting Rid of a Second Mortgage
Buying a house is supposed to be an investment, a way to build up equity in a property, eventually allowing you to sell it at a profit. Unfortunately, the turbulent housing market does not always allow for housing values to continually rise. As a result, it's not unusual for a homeowner to find themselves owing more on a home than that home is worth on the current market. This is known as a negative equity situation, or in slang terms, being "upside down" or "under water." This can be a very frightening situation, sometimes leading to foreclosure and the loss of a person's home. If you find yourself in a negative equity situation, all is not lost; there are legal steps you can take to help you keep your house. To find out more about how to keep the home that you've worked so hard for, speak to an experienced bankruptcy attorney. The legal team at the Nader & Berneman law firm has over 20 years of experience in helping homeowners retain their homes.
Chapter 13 Bankruptcy and Lien Stripping
Filing for Chapter 13 bankruptcy protection can be an effective tool for homeowners who’ve taken out second and third mortgages. Chapter 13 allows you to convert your additional mortgages from being secured debt to being unsecured debt. Secured debt is debt that has collateral. In the case of a mortgage, the collateral is the house or property you are purchasing. If you default on a mortgage, the bank or lender that gave you the mortgage can take your house back. Unsecured debt is debt where there is no collateral, such as credit card debt. By changing your second and third mortgages to unsecured debt, those lenders can no longer reclaim your home if you default on those loans. Changing your second and third mortgages to unsecured debt is referred to as “lien stripping.”
Requirements for Lien Stripping
In order for you to get rid of your "junior mortgages" (second and third mortgages), your senior mortgage (first or primary mortgage) must be greater than the current value of your home. For instance, if your first mortgage is for $250,000 and your house is valued $200,000, you can get rid of your second and third mortgages. However, if your senior mortgage is for $250,000 and your house is valued at $300,000, you do not have the option of lien stripping.
Lien stripping through Chapter 13 bankruptcy can be very helpful for enabling you to keep your home after it has become devalued. But Chapter 13 is not for everyone and in all situations. To find out if you are a good candidate for filing Chapter 13, you'll need to consult a seasoned bankruptcy attorney with thorough knowledge of federal statutes and how they will impact your case. To find out more, contact Nader & Berneman at (800) 568-0707.