Using Bankruptcy To Remove A Second Mortgage

Bankruptcy offers many powerful tools available to consumer debtors.  One such tool is the ability to get rid of a second mortgage.  The general rule in bankruptcy is that you cannot get rid of a mortgage that is tied to your home.  And there is nothing you can do about your first mortgage.  But in limited situations, you can remove a second mortgage.

Let’s use my clients Bill and Sharon as an example – names changed to protect anonymity.  When Bill and Sharon came in to see me, their finances were a mess.  They qualified to file a Chapter 7 bankruptcy – which would have discharged them of their debts.  It would not have taken care of their first and second mortgage or their vehicle loans – as they wanted to keep all those items.  Upon closer inspection of the situation, I began asking them the value of their home.  They stated their home was worth $120,000 according to the tax value and a recent appraisal.  Their first mortgage was for $137,000 and they had a $30,000 second mortgage against the home as well!  They owed $167,000 total on a home worth $120,000.  There was nothing to be done about the first mortgage, but if I put them into a Chapter 13, then I could strip the second mortgage and they could pay that debt inside the plan for pennies on the dollar.  They would save $505 per month from that second mortgage payment and be out from under the second mortgage in five years.

What I did to help Bill and Sharon can only be done in limited circumstances and an experienced bankruptcy attorney can help you determine if this remedy is appropriate for or available to you.  If you are drowning because of a first, second or even third mortgage on your property, make an appointment to speak with me to determine if relief is available for you.

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One Reply to “Using Bankruptcy To Remove A Second Mortgage”

  1. You cannot do a short sale until you’ve aadrley missed payments. If you are up to date on your mortgage, the bank has no reason to worry and therefore will not accept a short sale. The bank knows you can still make the payments because you still are, and will expect you to continue to fulfill your end of the bargain. If you do fall behind on payments, you have to have a good reason why. Such reasons might be a death in the family, loss of job or an injury that has kept you from working. A short sale protects the owners credit when the borrower can no longer make the payments. In that event, the bank realizes it’ll take many more months to wait to evict you and sell it themselves than if they cooperate with you and allow you to retain possession of the house while they sell it. The bank takes the financial hit and pays all the fees in the sale of the property, but in turn, the owner is not entitled to any equity that has built up on the property.If you have absolutely no equity in the house and just want to get rid of it, you might want to do research or talk with a lawyer about a quitclaim deed. With that deed, you sign off all your rights to someone else and they take on all the responsibility you once had. If nobody you know wants the property, I’m sure there are investors who will be more than happy to take it off your hands, rent it out and wait a few years for the market to rise. Then, you can move on to a less expensive house free from the hassle of your overpriced property.I am not a lawyer and not qualified to give legal advice, so please speak with an attorney about your options. Some of them may give you some quick advice over the phone without charging you. Good luck

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