Chapter 13 Bankruptcy & Your Second Mortgage

  1. Chapter 13
  2. Chapter 13 Bankruptcy & Your Second Mortgage

One advantage to filing for Chapter 13 bankruptcy is the possibility of getting rid of second or third mortgages on your home or stripping home equity loans or HELOCs (home equity lines of credit). The elimination of these loan types is referred to as lien stripping.

In Chapter 13 bankruptcy, petitioners usually keep all their property. If the debtor has secured debts, they are required to stay current on their payments or they will lose the property used for collateral. Chapter 13 bankruptcy does make sure that filers can fulfill this requirement through the option of including arrearages in the repayment plan. Chapter 13 filers who wish to keep their home need to continue to make their mortgage payment and catch up on any past due amounts through the bankruptcy court’s repayment plan.

The Chapter 13 bankruptcy process may be slightly different when dealing with second and third mortgages or HELOCs. For instance, if the home value has decreased, and the equity in the home no longer covers the first mortgage on the house, the “additional” mortgages are no longer secured by the property. They essentially become unsecured debt, and the bankruptcy court may “strip off” second and third mortgages or HELOCs under these circumstances. Unsecured debt is given last priority in a Chapter 13 bankruptcy. While they are theoretically paid through the repayment plan, their last priority status means they often are not paid in full, and some do not have to be paid back at all. At the end of the three to five-year repayment plan, any remaining balance on second or third mortgages or HELOCs that were recategorized by the bankruptcy trustee as unsecured is discharged.

Most jurisdictions only make lien stripping available through a Chapter 13 bankruptcy. But if you are filing bankruptcy in Georgia, you may be able to remove junior liens in a Chapter 7 bankruptcy.

For assistance filing for bankruptcy or more information about lien stripping, please get in touch with the experienced Tennessee and Georgia bankruptcy attorneys at Kenneth C. Rannick P.C. We help good people through bad times every day, and we can help you, too.https://bankruptcychattanooga.com/contact-us/

 

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