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Getting Rid of a Second Mortgage in a Chapter 13 Bankruptcy

It's bad enough when your New Jersey home is under water because you owe more than it's worth; it's worse when you have to pay down more than one mortgage in order to see equity again. Fortunately, you can free up some monthly income, and pay off some other debt (like those high credit card balances), by filing a chapter 13 bankruptcy.

When is a Mortgage Not a Mortgage?

Under bankruptcy law, in order for a debt to be secured (like a mortgage) rather than unsecured (like credit card debt), there has to be collateral of some value to which the loan can attach. It doesn't matter if the collateral is worth $1, and the debt is for $1 million; it is still secured.

Now let's say you have two mortgages. This could be because you got an 80/20 mortgage package when you bought your home, got a second loan for home improvements, or a loan to consolidate debt. Then let's say your home is worth $250,000, and your first mortgage balance is $280,000. This results in there being no equity to which the second mortgage can, as a practical matter, attach. This makes it unsecured in bankruptcy.

How Do I Get Rid of It?

Were you to file bankruptcy under chapter 13, you could strip off that second mortgage and save that second payment every month.  In fact, you could use the savings to pay a portion of that credit card debt through your plan.  Once your plan is completed, you come out of bankruptcy with one less mortgage payment, and without a load of credit card debt.

The only catch is, you have to complete your plan. If your plan falls through and does not complete, resulting in either a dismissal of your case or its conversion to a chapter 7, your second mortgage would not be stripped off, and you would end up out of bankruptcy with your second mortgage payments way behind! Therefore, there is some risk to this strategy.

How Do I Get Help?

If you are a southern New Jersey resident looking at a large load of credit card debt that you can't pay because of monthly payments on a second (or third) mortgage, and your home is worth less than the first mortgage balance, you might be able to get out from under with a chapter 13 bankruptcy.

Please feel free to call me at 856-432-4113 or contact me through this web site for a free consultation in my Woodbury office. It might make all the difference to your financial future.

If you have more questions about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

Steven J. Richardson
Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.