When a second mortgage is part of that debt, Chapter 13 bankruptcy can be employed. A skilled bankruptcy attorney has a number of tools to free you from unsecured debt, including secondary loans that threaten your home.
Types of Debt in Bankruptcy
As with all bankruptcy, Chapter 13 will classify your debt in order to determine which creditors must be paid and which can be discharged. In terms of mortgage debt:
- Secured debt is associated with tangible assets such as your home.
- Unsecured debt is associated with credit that is not directly tied to tangible assets, such as credit cards.
When a Home Goes Underwater
Let’s say the property is valued at $500,000. Your original mortgage is for $550,000 and you took out a second mortgage for an additional $100,000. You now owe $150,000 more than what your home is worth.The original mortgage will be considered secured debt since it covers the entire value of the home. But the second mortgage is now unsecured debt since it is an extension of credit that is not backed by a tangible asset. Chapter 13 bankruptcy may now be used to strip the unsecured mortgage.
By filing your bankruptcy, obtaining a certified appraisal of your home and developing a practical repayment plan, we may be able to lift some of your burden and protect your assets.