Can I Eliminate a Mortgage in Bankruptcy?

If you are struggling to pay your mortgage loans, it may be time to consider filing for bankruptcy protection. One benefit of filing a Chapter 13 bankruptcy is a process known as “lien-stripping.” If you have more than one mortgage and your home is “underwater,” you may be eligible to take advantage of stripping a lien on your home.

Having a home that is underwater means that you owe more on your house than what it is worth. Thus, your home does not have sufficient equity to support your second or third mortgage. In a Chapter 13 filing, you can argue that your inferior mortgage(s) should be treated as unsecured under your Chapter 13 plan. For instance, if you owe $100,000 on your first mortgage and $50,000 on your second mortgage, but your home is only worth $90,000, there is no equity to support your inferior loan.

In a Chapter 13 case, the debtor is required to file a repayment plan that sets forth how the creditors will be treated. The plan is not required to pay all of the creditors in full. In fact, unsecured debts such as (credit cards and medical bills) are usually paid a very small percent of what is owed. Thus, treating your inferior mortgage as an unsecured debt can save you thousands of dollars!

It is possible that your second mortgage holder will object to having its lien stripped, so it may be necessary to obtain an appraisal of your home to support your argument that the value of your home is insufficient to support its lien. Although an appraisal can be an added expense, it is worth the cost if it eliminates a lien and saves you thousands of dollars.

If you have an inferior mortgage and you are thinking about filing a personal bankruptcy, let us help determine if lien-stripping is an available option for you. Contact a seasoned bankruptcy lawyer at Nielsen Law Group today. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.