Stripping Mortgage Liens Through Chapter 13 Bankruptcy

Most people are aware that changes have been taking place concerning methods for people to save their homes. A major legal break through has occurred in Chapter 13 “house saver” bankruptcies that will help people in Washington to save their home.

Who this law change helps: People that have 2nd Mortgages on their home where the value of their house is less than the amount owed to the 1st mortgage.

What the change in the law provides: If a junior lien secured to real estate (a 2nd mortgage, 3rd mortgage, etc) is “wholly unsecured” the lien can be stripped (voided) from the property and the creditor becomes an unsecured creditor (like a credit card).

People then make payments for 5 years based on what they can afford to pay all unsecured creditors at 0% interest. Any remaining balance owed to any of the unsecured creditors after 5 years is then discharged completely!

 Example:

• Home current value – $225,000
• Balance owed on first mortgage – $230,000
• Balance owed on second mortgage – $ 80,000

In this example, the balance owed on the first mortgage exceeds the value of the home. Therefore, the $80,000 second mortgage can be stripped from the property so that only the first mortgage lien survives. The money owed to the second lender is now an unsecured debt like a credit card. Plan payments are first applied to the first mortgage and reasonable living expenses.

Each month, if there is any money left over after paying reasonable living expenses (including the first mortgage), the excess funds are paid to all unsecured creditors at 0% interest.

The $80,000 loan becomes unsecured and the home owner makes payments based on what they can afford with an approved budget. After 5 years, the balance of the $80,000 loan and any other unsecured creditor claims are then discharged completely.

Call today to schedule your free private consultation to see if this change in the law can help you save your house. We look forward to working with you.