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.