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As the economic climate has worsened, many homeowners have found themselves paying for homes that are worth less than the amount they owe. If you have multiple mortgages and the principal balance of the first mortgage is greater than the value of your home, you may be able to strip the junior mortgages in a Chapter 13 bankruptcy if you successfully complete your plan.
Given the right set of circumstances, stripping a second and/or third mortgage may be an option worth examining. An experienced Kansas City bankruptcy attorney can help you learn whether your circumstances are suitable for stripping a junior mortgage.
First Mortgages on a Primary Residence Cannot Be Discharged
The Bankruptcy Code specifically protects first mortgages on primary residences from modification under Chapter 13; you cannot alter the terms of the debt. In other words, when the value of a residence decreases below the remaining balance of a first mortgage, a debtor cannot modify the debt in bankruptcy while simultaneously keeping the home. If you want to keep your house, you must pay the first mortgage under the contract terms.
Subsequent Mortgages Can Be Discharged
If you have a first mortgage on a property you do not use as your primary residence, you may be able to reduce the balance. Additionally, you may be able to strip second or any other junior mortgages if they are “wholly unsecured” – even if they are secured by a primary residence. A debt is wholly unsecured if no part of value of the collateral secures it. For instance, if a home is worth $250,000 and the first mortgage payoff is $235,000, the home is worth more than the balance on the first mortgage. If, in that instance, the second mortgage payoff is $50,000, the second mortgage is not wholly unsecured because $15,000 of the value of the collateral secures it. You would not be able to strip the second mortgage, and you would have to repay it if you wanted to keep your home. However, if the home is worth $250,000 and the first mortgage payoff is $260,000, the house is worth less than the first mortgage. In that scenario, if the second mortgage payoff is $50,000, the second mortgage is wholly unsecured because none of the value of the collateral secures it. You can propose to strip that second mortgage in your Chapter 13 plan and treat it as an unsecured debt, like a credit card. If you successfully complete your Chapter 13 plan, you leave your bankruptcy with only one mortgage.
Potential Benefits to Homeowners Are Available: Contact An Attorney Today
If you have a wholly unsecured junior mortgage, you may be able to discharge some of it in a Chapter 13 bankruptcy and not lose your home. In instances where you are in danger of losing your home because of overwhelming financial burdens, this is an option which may have significant benefits. An experienced bankruptcy attorney has the knowledge necessary to guide you through these situations. If you need help keeping your home, contact a Kansas City bankruptcy lawyer as soon as possible.
