Removing a Second Mortgage from Your Home
November 27, 2010 By Southern California Law Advocates, P.C.
Bankruptcy can allow you to remove a second mortgage from your home. If your home is underwater you may qualify to have your second mortgage removed.
Chapter 13 bankruptcy can allow people who are faced with a home that is underwater, because they took out a second mortgage or simply purchased the home when the market was high, to remove the second mortgage. Under Section 506(a) of the bankruptcy code, the second mortgage of your primary residence can be treated as unsecured. In order for 506(a) to allow your second mortgage to be treated as unsecured and removed from your home, it must meet specific requirements.
Section 506 (a) allows for the modification of a secured claim where the junior mortgage is fully unsecured. This means that if the value of your home is not higher than the outstanding balance on the first mortgage then your junior mortgage is considered fully unsecured. When your second mortgage is fully unsecured then you can have your second mortgage treated as unsecured debt as part of your Chapter 13 bankruptcy. If your home value is higher than the first mortgage then there is some value that your second mortgage attaches to. If there is some value, even if minimal that your second mortgage attaches to then the option to strip your second mortgage is not available.
In order for your junior mortgage to be removed from your primary residence you must file either a lien stripping motion or an adversary proceeding. If your motion is approved then your second mortgage will be treated as unsecured claim as part of your Chapter 13 bankruptcy.
If your motion is approved then the second mortgage will be treated the same as other unsecured claims such as credit cards debt, medical bills and personal loans. The second mortgage claim will be paid at the same rate as any other unsecured claim. What percentage is paid back to your unsecured creditors will depend on your Chapter 13 payment plan.
The lien from the junior mortgage will remain on your home until your complete your Chapter 13 bankruptcy and receive a discharge. If you do not complete your Chapter 13 bankruptcy then the junior mortgage (second mortgage, HELOC, equity line of credit) will remain on your residence.
Removing your junior mortgage is not available as part of a Chapter 7 bankruptcy. If you are filing for Chapter 7 bankruptcy then you do not have the option to treat your second mortgage as an unsecured claim.
ABOUT THE AUTHOR: Norma Duenas, Esq
Managing Attorney of Southern California Law Advocates.
Copyright Southern California Law Advocates, P.C.
More information about Southern California Law Advocates, P.C.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Section 506 (a) allows for the modification of a secured claim where the junior mortgage is fully unsecured. This means that if the value of your home is not higher than the outstanding balance on the first mortgage then your junior mortgage is considered fully unsecured. When your second mortgage is fully unsecured then you can have your second mortgage treated as unsecured debt as part of your Chapter 13 bankruptcy. If your home value is higher than the first mortgage then there is some value that your second mortgage attaches to. If there is some value, even if minimal that your second mortgage attaches to then the option to strip your second mortgage is not available.
In order for your junior mortgage to be removed from your primary residence you must file either a lien stripping motion or an adversary proceeding. If your motion is approved then your second mortgage will be treated as unsecured claim as part of your Chapter 13 bankruptcy.
If your motion is approved then the second mortgage will be treated the same as other unsecured claims such as credit cards debt, medical bills and personal loans. The second mortgage claim will be paid at the same rate as any other unsecured claim. What percentage is paid back to your unsecured creditors will depend on your Chapter 13 payment plan.
The lien from the junior mortgage will remain on your home until your complete your Chapter 13 bankruptcy and receive a discharge. If you do not complete your Chapter 13 bankruptcy then the junior mortgage (second mortgage, HELOC, equity line of credit) will remain on your residence.
Removing your junior mortgage is not available as part of a Chapter 7 bankruptcy. If you are filing for Chapter 7 bankruptcy then you do not have the option to treat your second mortgage as an unsecured claim.
ABOUT THE AUTHOR: Norma Duenas, Esq
Managing Attorney of Southern California Law Advocates.
Copyright Southern California Law Advocates, P.C.
More information about Southern California Law Advocates, P.C.
View all articles published by Southern California Law Advocates, P.C.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
