Law Office of Allan E. Dunaway, PLC

Getting rid of a second mortgage through bankruptcy

Some people in Kentucky that are considering bankruptcy are wishing to prevent foreclosure of their homes. Many of them may have second mortgages on the property. Like the primary mortgage holder, the second mortgage lender can initiate foreclosure proceedings if the homeowner defaults on his or her payments.

When people attempt to save their home from foreclosure on a second mortgage through bankruptcy, they may have to file for Chapter 13. While Chapter 7 will discharge unsecured debts, secured property interests, including those of lien holders, remain and can be enforced. Conversely, if a person files Chapter 13 bankruptcy, the debt owed to the second mortgage lender may converted to unsecured debt under certain circumstances.

Chapter 13 reorganization involves the debtor proposing a plan of repayment lasting for a period of three to five years. If the person makes the payments as approved, his or her remaining debt will be discharged. The sum of these payments might be significantly less than the total debt owed. If the second mortgage debt is converted to an unsecured debt, any amount left at the end of repayment will be discharged, removing the lien on the home.

People who want to file bankruptcy and also want to avoid foreclosure may wish to consider filing a Chapter 13 bankruptcy case instead of Chapter 7. Even if the person is in default on both his or her first and second mortgages, the foreclosure proceedings may be stopped during the repayment period, which might allow the person more time to catch up on his or her first mortgage while making payments toward the second along with other debts.

Source: SF Gate, "How to Strip Away a Second Mortgage Through a Bankruptcy", Tony Guerra, December 08, 2014

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For sound bankruptcy advice you can count on, from a skilled lawyer who truly cares about your future, contact the Louisville Law Office of Allan E. Dunaway, PLC. We have two convenient locations: Louisville, Kentucky, and Jeffersonville, Indiana. Our main office in Louisville is located off the beaten path so you won't have to deal with downtown traffic and can pull right up to our door and walk right in.

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