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How can a Chapter 13 help with second mortgages?


Many people in Louisville, Kentucky, usually in an effort to manage their finances, take out a second or even a third mortgage on their home. This works well so long as the family has a steady income and no other financial problems. However, in the midst of financial problems, a family can get behind in their second mortgage payments.

The good news is that, when this happens, a family may be able to get financial relief through Chapter 13 bankruptcy, particularly if they are upside down in their mortgages and don't have equity in their houses. The reason is that Chapter 13 is unique in that allows debtors to strip off liens like second and third mortgages.

This does not mean that they are able to get out of the debt immediately and altogether. However, stripping off does mean that a debtor who does not have equity in their house can treat a second mortgage as an unsecured creditor, even though the mortgage is actually secured by the house.

In practice, getting to treat the second mortgage as unsecured means that a debtor will likely pay less, if anything, to the bank who holds the second mortgage. Once the Chapter 13 payment plan is complete, the second mortgage gets discharged like any other debt, and the debtor does not have the ability to foreclose on the property.

The stripping off of liens can offer very important advantages to debtors who choose to file a Chapter 13 bankruptcy. However, it can be a complicated and delicate process, as holders of second mortgages are prone to fighting efforts to "strip off" liens. Therefore, an experienced attorney is often of valuable assistance.

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