How Can I Avoid My 2nd Mortgage by Filing Bankruptcy?

If you file for Chapter 13 and the value of your home is less than you owe on your 1^st mortgage and you also have a 2^nd mortgage, Chapter 13 allows you to reclassify your second mortgage (i.e. remove it from your deed and pay it as an unsecured creditor) and pay back only a percentage of what is owed to your unsecured creditors (credit cards and balance of what was a 2nd mortgage).

Many people who qualify for Chapter 7( a“fresh start” provided by a complete discharge) choose to file for Chapter 13 because Chapter 13 will enable them to stay in their home (and afford their home) by reclassifying their second mortgage. A second mortgage cannot be reclassified under a Chapter 7. Because of this fact, a Chapter 13 may ironically provide more debt relief to some consumers than a complete discharge in Chapter 7.

If you are behind on your mortgage payments, under a Chapter 13 you will get caught up over 5 years (this is called “curing”). Falling behind on your second mortgage will have no bearing on reclassifying the second mortgage.

How do you decide if you should file for Chapter 7 or Chapter 13?  You should sit down with an attorney who is experienced in bankruptcy and he/she should look at your entire situation to find the best financial solution for you.

For more information on bankruptcy in Ohio, contact my office at 614.556.4522

Mark Jump