Is Your House Under Water? Eliminate Your Second Mortgage Payment in a Chapter 13 Bankruptcy

In Georgia, bankruptcy law allows a debtor who has two mortgages to get rid of the second mortgage in a Chapter 13 and classify the second mortgage as an unsecured debt in a situation where a debtor’s home has a value that is less than the amount of the first mortgage.

For example, if a debtor owns a home that has a fair market value of $100,000 and has a first mortgage in the amount of $110,000 and a second mortgage in the amount of $25,000, then the debtor can ask the court to get rid of the second mortgage lien on the property as part of his Chapter 13 reorganization plan.

If the court approves the request, then the second mortgage is classified as an unsecured debt, and the debtor does not have to pay the monthly second mortgage payment during the course of the Chapter 13 bankruptcy plan, which usually lasts between three and five years.

At the end of a successful Chapter 13 bankruptcy repayment plan, the bankruptcy court will issue an order discharging or wiping out all of the debtor’s debts, including the second mortgage debt. The bankruptcy court will also issue an order “stripping” the second mortgage lien. This lien stripping order should be filed with the real estate records in the county in which the property is located and serves to cancel the security deed that the second mortgage company held on the property.

Thus, upon the successful completion of the Chapter 13 case, the debtor will no longer owe the second mortgage company any money, nor will the second mortgage company have any rights with regard to the property. The theory behind this law allowing debtors to essentially eliminate the second mortgage payment is that, because the property has no equity, then the second mortgage company has no real security in the property to which the mortgage can attach. Call the Law Offices of Charles Clapp at 404.585.0040 or e-mail to schedule a free consultation about your second mortgage debt.