Suppose you have a house in Centennial that is worth $300,000. You have a first mortgage of $275,000 and a second mortgage of $30,000. What happens to your second mortgage when you file for bankruptcy in Centennial and Littleton?
What Happens to a Second Mortgage when you File Chapter 7?
In a Chapter 7 bankruptcy you can stop paying on the second mortgage and the mortgage holder will probably not foreclose. This is because in order to foreclose they would have to pay off the first mortgage holder. However, the second mortgage does NOT go away. It continues as a lien on the house and if the house is ever sold, the second mortgage will get paid principal and interest before any money comes to you. On the other hand, if you decide to just walk away from the house, neither the first nor the second mortgage holder can come after you for a deficiency.
What Happens to a Second Mortgage when you File Chapter 13?
Now, let’s change the facts a little. Suppose you have the same house, but the first mortgage is $301,000. The second mortgage holder has no equity for its lien. In a Chapter 13 bankruptcy you can “strip” the second mortgage off you house in this situation. Your lawyer makes a motion, and the bankruptcy court will enter an order voiding the lien of the second mortgage contingent upon all payments in the plan being paid. The second mortgage holder is then treated as an unsecured creditor in the Chapter 13 plan. After all plan payments are made, you get a discharge of the unpaid amount of the second mortgage and the lien goes away. Say that in the meantime the value of the house has gone to $325,000. Now you have $24,000 in equity and no second mortgage!
Now you understand what happens to your second mortgage when you file for bankruptcy in Centennial and Littleton. It is important to have a loyal ally on your side as you decide the best way to resolve your financial issues and get a new start. Barry Arrington has proven many times that he can successfully overcome the difficulties of filing a Chapter 7 or Chapter 13 Bankruptcy. Contact an experienced Centennial and Littleton bankruptcy lawyer at 303-205-7870 for answers to more specific questions.
Image Courtesy of graur razvan ionut / FreeDigitalPhotos.net