Get Rid of a Second Mortgage in Bankruptcy
Do you have a second mortgage that you are struggling to pay? Could you manage your debts if you could just get rid of this additional mortgage? You may be able to eliminate the second mortgage on your home in a Chapter 13 bankruptcy case if you meet all requirements.
Below is a very brief discussion of valuing a second mortgage in a Chapter 13 repayment plan. However, your case is unique, and there could be other factors that determine whether you can value your second mortgage. We encourage you to read the information below and then contact our office to schedule a free bankruptcy consultation with our Prescott bankruptcy lawyer to discuss the specifics of your financial situation.
Valuing a Second Mortgage in Chapter 13
When you file your proposed Chapter 13 plan, you include a motion to value the debt at zero. However, to be successful, you must prove to the court that the market value of your home is less than the balance owed on your first mortgage. If the value of your home is one cent more than the balanced owed on your first mortgage, your motion will be denied. You cannot value a portion of the second mortgage — it is an all or nothing motion.
In most cases, you need a recent appraisal of your home to present to the court as evidence of the market value of your home. You should be prepared for the mortgage company to object to your motion and provide its own appraisal. When the value of your home and the payoff of the first mortgage are close, it can be more difficult to win a court battle. The matter comes down to a battle of the appraisers and who can convince the judge his appraisal is correct. Depending on the amount of money in question, it may be worth fighting in court to value the second mortgage at zero.
What Happens if I Am Successful?
If your motion to value is granted, the lender should release the lien for the second mortgage. However, this does not mean that the debt simply disappears. You still owe the same amount of money for the loan, but the debt is now considered a general unsecured debt. Therefore, it will be treated the same as other unsecured debts such as credit card bills and medical debts.
If you are paying 30 percent to unsecured creditors, the second mortgage lender will receive 30 cents on the dollars for its debt. At the end of your plan, the remaining balance on the mortgage is discharged as an unsecured debt. You will not be legally liable to repay this debt, and the mortgage lender must release its lien on your home.
Because each case is different, it is very important to work with an experienced bankruptcy lawyer who understands all the requirements for successfully valuing a second mortgage in a Chapter 13 plan.
If you have questions, call our Prescott bankruptcy attorney at 928-277-4304to schedule a free consultation.
How to Make the Most of Your Bankruptcy Discharge?
Once you complete your Chapter 13 repayment plan, you need to continue to improve your financial well-being by making the most out of your bankruptcy discharge. Your discharge has relieved you from paying most, if not all, your unsecured debt. Unless you owe alimony, child support, student loans, or other debts that are non-dischargeable, you are coming out of Chapter 13 with your mortgage as you only debt (most debtors pay their car loans and any taxes they owe in full through their repayment plan).
Take advantage of not having any unsecured debt to continue adding to your emergency savings fund and your retirement accounts. If you think you need a new vehicle, you should begin a savings account for a down payment. The more money you can put toward the down payment, the less you will need to finance.
As you begin to use credit cards and incur debt again, remember use credit wisely. Limit credit card debt to 30 percent of the credit limit and pay off the balance as quickly as possible. Using credit wisely can help improve your credit rating; however, you need to remember the tips and suggestions from your debtor education course for managing debt.
Once each year, obtain copies of your credit reports and review each report carefully. Mistakes, fraud, and errors in credit reports can be very costly. If you see any problems, notify the credit reporting agency immediately by telephone and in writing. Make sure that you follow up and take all steps necessary to correct the information in your report.
Your bankruptcy case can be a great way to jump-start a new approach to finances, savings, and managing money. Debtors who are successful see a Chapter 13 as a positive step in building a strong financial foundation.