Strip Your Second Home Loan
14/08/10 20:08 Filed in: Bankruptcy
Stripping Your Second and/or Third Home Loan in Chapter 13
Chapter 13 Bankruptcy can remove the second mortgage and even a third mortgage off your home. In a Chapter 13 bankruptcy, section 506(a) allows your second mortgage to be stripped off your home and be treated as unsecured debt, provided the value of your home is at or below the outstanding balance on your first mortgage.
Chapter 13 Bankruptcy can remove the second mortgage and even a third mortgage off your home. In a Chapter 13 bankruptcy, section 506(a) allows your second mortgage to be stripped off your home and be treated as unsecured debt, provided the value of your home is at or below the outstanding balance on your first mortgage.
• For example, Let’s assume your home is worth $500,000 and there are two outstanding mortgages in the amount of $600,000 (1st mortgage) and $75,000 (2nd mortgage). In this scenario your home value of $500,000 would be below the first mortgage, which would allow you to strip off the second mortgage. In this situation, your second mortgage is completely unsecured, and you may be able to discharge it, and never pay it back.
During the term of your Chapter 13 plan your second mortgage will be treated as unsecured debt, and will be repaid the same percentage as the rest of your unsecured creditors.
In order to remove your second mortgage off your property the borrower will through a formal proceeding, requests the Court to for an order to strip off the second loan. Once your lien stripping motion is approved, your second mortgage will be treated as unsecured debt in your Chapter 13 bankruptcy case.
However, the borrower must complete the Chapter 13 plan in order for the removal of your second mortgage to be complete. Therefore, if the Chapter 13 bankruptcy case is dismissed or converted to a different bankruptcy chapter (such as Chapter 7) then the lien from your second mortgage will not be removed.