It Even May Be Possible to Get Rid of a Second Mortgage
One of the advantages of filing for bankruptcy under Chapter 13 is that an entirely unsecured second mortgage, or other junior mortgage, can be stripped from your homestead or other real estate. This mortgage is then treated by the Chapter 13 plan as an unsecured claim, the same as a credit card or other unsecured debt. Consequently, it only has to be paid in part rather than being paid in full like your first mortgage. (You can never get rid of your first mortgage in whole or in part by filing Chapter 13.)
Stripping unsecured second mortgages cannot be done in Chapter 7 cases. Even in Chapter 13, it can only be done when your home’s market value is less than the entire balance owed on the first mortgage, rendering the second mortgage entirely unsecured by any value of the home. This means that in deciding whether to seek to strip off a second mortgage, an appraisal of your home will sometimes be necessary. For example, if your home is worth $200,000 and you have a first mortgage in the amount of $225,000 and a second mortgage in the amount of $50,000, you may be able to “strip” your second mortgage. However, if your home is worth $200,000 and your first mortgage is in the amount of $199,000 and your second is in the amount of $50,000, you won't be able to strip off your second mortgage because it's partially secured.
You must complete your entire repayment plan in order for your second mortgage to be stripped. If you do not complete your plan, the mortgage remains on the property.
Call our office to find out whether your second mortgage could be stripped off in a Chapter 13 case.
