Removing a Second Mortgage in Bankruptcy

Most of our bankruptcy clients have tried everything to pay their debts in order to avoid bankruptcy including exhausting their savings accounts and tapping into the equity in their home with a second mortgage or equity line. Our experienced Radcliff and Elizabethtown and Louisville bankruptcy attorneys understand that this may seem to be a reasonable course of action for most individuals; however, in most cases, we may have been able to protect those assets from creditors had the clients come into our office before they took that course of action.

Unfortunately, there is nothing that we can do to replenish a savings account or retirement account once the funds have been exhausted to pay creditors or living expenses. However, in some cases, we may be able to remove a second mortgage in bankruptcy.

Using a Chapter 13 to Remove a Second Mortgage in Bankruptcy

To remove a second mortgage in bankruptcy, the debtor must value the mortgage at zero in his or her Chapter 13 bankruptcy plan. However, in order to remove a second mortgage in bankruptcy, the debtor will need to obtain an appraisal to establish the current market value for the property. This is required in order to prove that the current value of the home is less than the amount owed on the first mortgage. The value of the home must be less than the payoff on the first mortgage to remove a second mortgage in bankruptcy.

If the appraised value is just $1 over the payoff of the first mortgage, the debtor will not be able to value the second mortgage at zero. The Bankruptcy Code does not permit the debtor to value a portion of the second mortgage to get rid of the amount over and above the appraised value. Therefore, in order to keep the home, the debtor must pay the full payoff of the second mortgage either through the bankruptcy plan (depending on the payoff of the second mortgage) or by continuing to make the payments outside of the bankruptcy.

If you are struggling with debt and need to file a bankruptcy, contact our office to schedule a free bankruptcy consultation with one of our experienced bankruptcy attorneys. In addition to discussing how to remove a second mortgage in bankruptcy, we will discuss all of your options to resolve your debts through bankruptcy.

Experienced Bankruptcy Attorneys Serving Kentucky Families Since 1982

The bankruptcy lawyers at Musselwhite Meinhart & Staples have been helping individuals just like you since 1982. Our attorneys understand the stress and frustration that you are experiencing as you struggle with debt problems. We can help you find an affordable solution to your financial problems so that you can have a fresh start.

Call our office at 270-351-6032 or to schedule a free consultation with one of our Radcliff and Elizabethtown and Louisville bankruptcy attorneys. If you prefer, you can send a secure message through our online contact form and one of our helpful staff members will contact you to answer your bankruptcy questions. We have offices in Radcliff and Elizabethtown and Louisville for your convenience.