Can Chapter 13 bankruptcy help me to get rid of my second mortgage?
Ohio home prices have risen significantly since the housing crisis, but remain lower in most areas than the peaks reached in 2006 and 2007. The Ohio foreclosure rate is above the national average, with many homeowners underwater or struggling to maintain their mortgage payments. For the tens of thousands of individuals in Ohio trapped in upside down mortgages, Chapter 13 bankruptcy may offer relief.
Lien Stripping
In a Chapter 13 bankruptcy, eligible homeowners may be able to eliminate a second mortgage or home equity line of credit. This process is known as “lien stripping.” Under Chapter 13, a debtor can file a lawsuit during the bankruptcy process requesting that the court modify the rights of the second or junior lien holder. Once stripped, the debt can be totally or partially discharged in the bankruptcy.
Generally, mortgages are considered secured debts, with the home serving as security. However, under the Bankruptcy Code, a second mortgage may be declared unsecured if the assessed value of the home is less than the primary mortgage. For instance, if your home has a value of $200,000 and two mortgages, with the first totaling $220,000 and the second for $30,000, then the second mortgage is not secured. The bankruptcy court could then “strip” the second mortgage from the home and convert it to unsecured debt.
The home appraisal will be one of the most critical elements in the loan stripping process. If you are considering filing for Chapter 13 bankruptcy, obtain an appraisal of your home. You should prepare for the mortgage company to battle your request to strip the loan. The bank can order a separate appraisal, and the court will need to choose between them. Although it can take some time and effort, obtaining a discharge of your second mortgage in a Chapter 13 bankruptcy may offer you substantial financial relief. Homeowners that are underwater should closely explore the option of Chapter 13 bankruptcy and consult with our knowledgeable Miami Valley, Ohio bankruptcy attorneys.