If you have more than one mortgage loan on your home and you are struggling to pay your bills, it is time to consider obtaining relief from your debt by filing a personal bankruptcy case. A significant benefit of filing a Chapter 13 case is a procedure commonly referred to as “lien stripping.” It allows a debtor with multiple mortgages and a home that is “underwater” to treat inferior mortgage liens as unsecured debt.
The following is an example illustrating how lien stripping works:
John owns a house that is worth $200,000. John owes $225,000 on his first mortgage and $25,000 0n his second mortgage. Although John has a steady job, he cannot afford to pay both mortgages in addition to all of his other bills. John decides to file a Chapter 13 case and argue that his second mortgage should be treated as unsecured debt in his Chapter 13 repayment plan because there is no equity in his home to support the second mortgage loan.
If you are wondering how treating the second mortgage as unsecured debt helps, the answer is that most Chapter 13 debtors pay their unsecured lenders pennies on the dollar owed. Your Chapter 13 plan must pay unsecured creditors (which also include credit card and medical bills) a percentage of the debt owed, and in many cases, that percentage is zero! As a result, treating your second mortgage as an unsecured debt can allow you to discharge or eliminate thousands of dollars!
It is important to understand, however, that your second mortgage holder has the ability to file an objection to having its lien stripped. If this occurs, we can assist you with obtaining an appraisal of your home to submit as evidence that there is no equity in the house to support the inferior lien. While appraisals are an added expense, the small amount spent will be worth it if you discharge thousands of dollars owed under your second mortgage.
Chapter 13 bankruptcy is not an indicator of failure. In fact, it is actually a method by which you can lay the foundation for a better, brighter financial future for you and your family. Choose A Thorough California Debt Settlement Attorney with offices in Jackson and Folsom. Contact us today to schedule a comprehensive consultation.