In Chapter 13 Bankruptcy, Second Mortgage Can Be Removed

With record high home foreclosures and a slumping economy, homeowners are concerned about losing their homes and searching for options to keep from losing their home. Many people are being faced with the reality that their home has depreciated to the point that it is worth substantially less –in some cases half what they owe. Some cannot afford their mortgage, and others, when faced with the difficulty of continuing to pay on a home that is upside down, decide to walk away from the house.

Instead of just walking away from your home, a Chapter 13 Bankruptcy can keep you in your home, and, if you are paying on a second mortgage, can significantly reduce the amount you actually pay for your home. The Ninth Circuit Court of Appeals has held that the bankruptcy code allows, in situations where the value of the home is less than the amount owed on the first mortgage, the second mortgage can be “stripped” off, leaving only the first mortgage to pay. For example, if your first mortgage is $200,000, and you also have a second mortgage of $50,000, but your home is worth only $185,000, in a Chapter 13 Bankruptcy the $50,000 second mortgage can be stripped off, leaving only the first mortgage on the property.

In a Chapter 13 Bankruptcy you can also stay in your home and be given significant time (3-5 years) to get caught up on any payments you may be in arrears. In short, a Chapter 13 Bankruptcy can be a valuable tool in navigating these troubled financial times, especially in the area of residential real property and second mortgages. The Combs Law Group offers a free 30 minute consultation for bankruptcies.

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