Chapter 13 bankruptcy can provide mortgage relief

Did you know that in many jurisdictions one can use Chapter 13 bankruptcy to get rid of a second mortgage on your home?

Nowadays, given that the real estate market in Chicago and elsewhere, has been tanking many people are finding themselves upside down on their home.  What does that mean?  It means they owe far more on their mortgage or mortgages then the property is worth.

We bankruptcy lawyers were all hoping and praying that Congress would pass legislation that would allow us to ‘cram down’ mortgages to the amount of the current market value, but unfortunately, such a law has yet to pass.

Allowing first mortgages to be modified in bankruptcy would have saved thousands and thousands of homes throughout the nation, and entire neighborhoods!  But we still have a few tricks up our sleaves.  In many jurisdictions we can still use Chapter 13 bankruptcy to strip a second mortgage on real estate provided the current market value of the property has dropped low enough.

To Qualify, Your Home Value Must be Appraised at Less Than the Outstanding Balance on Your First Mortgage

If there is any equity to cover the second mortgage it is unlikely that you can do it, but many of my clients have real estate that has dropped over 25% in value during this current economic crisis and the time is ripe to determine if they can get rid of those second mortgages taken out when values of real property were peaking.

So take some time to get a free market analysis of your home to get a ballpark figure of the current market value of your home.  If it comes in low enough, near what you owe on the first mortgage, I suggest you contact a local bankruptcy attorney to determine if you should file a Chapter 13 bankruptcy to get rid of that second mortgage.

You will likely have to pay for a formal appraisal, in the neighborhood of $300 – $500 but if the value has dropped enough, you can indeed rid yourself of that second mortgage forever and ever.  Of course, you must successfully complete the Chapter 13 payment plan in order to get rid of it permanently.  This is not something you should attempt without consulting with an experienced Chapter 13 lawyer, preferably a member of the National Association of Consumer Bankruptcy Attorneys, NACBA.  You can usually rely on lawyers who are members of this organization to provide sound legal advice.

SEE ALSO: File a lawsuit to Finally Achieve Mortgage Modification?