This is how it functions. First, we can only reduce a second mortgage if the first mortgage is greater than the home's value. Therefore, if your property is worth $100,000 and you owe $99,999 on your first mortgage, we cannot eliminate your second mortgage. Before we file your petition, we will advise you to have your property appraised so we can be certain of its value. If you have recently refinanced, we can likely use that appraisal. After we file your petition, we will file a motion to determine secured status arguing that the second mortgage should be stripped due to the absence of equity in your property. If we've done our research, the court should easily approve the motion.
Once the court approves our motion to ascertain secured status, your second mortgage will be treated similarly to your other unsecured Chapter 13 creditors. They receive a portion of the monthly payment you make to the bankruptcy trustee (which is dependent on your disposable income). You should be aware that the second mortgage will be eliminated only if your Chapter 13 bankruptcy is finalized. If your Chapter 13 bankruptcy is dismissed, your second mortgage lender will regain a secured interest in your residence. As before, if you default on this loan, the lender could exercise its right to foreclose.
You should also remember that Chapter 7 does not permit lien stripping. This is just one reason why someone might file a 7 instead of a 13 tax return. If you are eligible for Chapter 7, filing for Chapter 13 to remove a second mortgage is probably only prudent if the second mortgage is substantial. You may not be able to strip your second in a 7, but the bankruptcy procedure will be completed much sooner (four to six months versus three to five years).
Chapter 13 bankruptcy may permit the elimination of a second (or third) mortgage. Consider speaking with a bankruptcy attorney before deciding if it is a viable option for you. Most offer complimentary consultations.""
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