Second Mortgages In Bankruptcy

It is not uncommon for people who have fallen into financial troubles to take out a second mortgage on their home. Often people take a second mortgage to lower their monthly payments or to free up additional credit within the loan to make modifications to the home they cannot afford out of pocket. In the case of financial hardship, this does not work and merely delays the process of filing for bankruptcy as a debt relief option.

Second Mortgage, Second Chances

During a bankruptcy proceeding, homeowners may be able to get rid of a second mortgage or a home equity line of credit. This is referred to as lien stripping. There are various requirements that must be satisfied in order for the mortgage to be discharged. What must have happened is that the home’s value has been decreased to the point that any equity that has been built up in the home is no longer sufficient to secure any of the second mortgage balance. To prove this, an appraisal must show that the house’s fair market value is so low that if you sold it, you wouldn’t be able to pay off the second mortgage. On the other hand, if it turns out that even a little portion of your equity is sufficient to secure collateral on a second mortgage, you will not be allowed to discharge this debt in bankruptcy.

The risk of foreclosure on a single or double mortgage comes with far more headache than many people realize. Whether seeking financial help through a Chapter 13 or Chapter 7, the process can be quite complex. It is always advised to seek the counsel of an Elk Grove bankruptcy lawyer to assist you in making the best informed decision for you and the protection of your home.