Understanding Second Mortgage in Bankruptcy

Some homes have depreciated in the recent times. You might consider getting your second mortgage in bankruptcy discharged under chapter 13. The elimination of the second mortgage is carried out by a process termed as lien stripping. Understanding second mortgage in bankruptcy can shed some light on the process of debt relief with secured debts.

Understanding Second Mortgage in Bankruptcy

Since the decline in the real estate market over the past decade, many homeowners have to bear the brunt of their mortgage. In most cases the mortgage being higher than the current worth of their house. In such cases, the homeowner will be required to pay back a second or third mortgage as a junior lien in lieu of the deficiency. However, in chapter 13 bankruptcy, you have a tool called lien stripping. This can help you get rid of your second mortgage. The US bankruptcy Court orders the lender to withdraw its lien on your property. In other words, your second mortgage (which is a secured debt) is converted to an unsecured debt just like your credit card debt.

However, you can opt for lien stripping of your second mortgage. This can  be done when your first mortgage exceeds the market value of your property. In Chapter 13, the second mortgage on your house is treated as a non-priority unsecured debt. This is treated just like your credit card or medical debt. This implies that you will be required to make only a partial payment towards your second mortgage in chapter 13. Once the chapter 13 plan is dismissed, the balance due on your mortgage is also automatically discharged.

If you have filed for a chapter 13, you automatically get the benefit of not having to pay for a second mortgage. A lean stripping would be able to provide the homeowner with some relief since he/she will be saved from paying the additional amount.

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