So many homes in Florida are now worth less than their mortgages.  Most folks that come to see me have a first and a second mortgage, or a mortgage and a Home Equity Line of Credit (HELOC) that together exceed the value of their home, preventing them from refinancing and choking their household budget.  They want to keep their home, but cannot afford the status quo and come to ask about bankruptcy options.  Earlier this year the House passed a bill that would have allowed home owners to strip mortgage debt that exceeded the value of the property, often called ‘cram down’.  The measure soon after failed in the Senate.  In case you are interested, Senator Nelson voted for it and Senator Martinez voted ‘no’.  So what is available?  Right now the only relief available is called a ‘Lein Strip’ of the second mortgage or HELOC in a Chapter 13 Bankruptcy.  Lein strips are not as easy as they sound, though.

A home owner must first have regular income that would support a Chapter 13 payment that includes the payment for the first mortgage, any other secured debt, attorney’s fees and administrative costs.  They must also be prepared to be in a financial purgatory for a period of time, usually three to five years (no credit cards, no debt, live on a budget, etc.). Finally, there has to be an appraisal done on the home prior to filing that shows the home is worth less than the principal balance of the primary mortgage.  The lein strip is temporary until completion of the full Chapter 13 Plan.  Upon discharge the strip then becomes permanent and should be recorded with the county court clerk’s office.    Even if this sounds appealing, there are many other variables to consider that should be thoroughly discussed with an experienced bankruptcy attorney.  Many give free initial consults.