Can I get rid of my 2nd mortgage in bankruptcy?

Only if your property is underwater (the mortgage exceeds the value of the house). Generally, both first and second mortgages are secured debt. Secured debt cannot be eliminated in bankruptcy. But if your first mortgage is more than the value of your home, your second mortgage (and any other junior mortgages) is considered unsecured. This is because if your primary mortgage holder forecloses on your home, there will be no funds left from the sale of the home to pay the second mortgage holder, meaning the second mortgage is not secured by the property. This process of removing your second mortgage from your house is called lien stripping.

Example. Let’s say your house is worth $200,000 and you have a $250,000 first mortgage and a $50,000 second mortgage.  Since your first mortgage is more than your house is worth, you can strip your second mortgage.  (If you also had a third mortgage, then you could get rid of that too).  But if your house was worth $280,000, then you have $30,000 of equity above the first mortgage so you cannot strip your second mortgage.

Similarly, if the home is worth less than the outstanding principle on the first mortgage, the court may cram down (reduce) the mortgage principle to reflect its current market value. The excess debt is then unsecured and  can be eliminated.

For more information or help with getting rid of a junior mortgage, reducing a first mortgage, or advice on dealing with underwater property, contact a Seattle Bankruptcy Attorney.

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
425.889.933

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What happens after I file bankruptcy?

After the bankruptcy petition is filed, the court will appoint a trustee and call a meeting of all your creditors. The trustee and your creditors can ask you about your assets, income, and expenses.

In a Chapter 7, the trustee will determine what assets, if any, the court can take possession of and sell. But almost all your assets will be exempted (protected). Once the trustee determines that there are no assets available for liquidation, almost all your outstanding debts are discharged.

In a Chapter 13, you must include a repayment plan that provides for monthly payments to creditors in your petition. Your creditors may question your income and expenses to try to obtain a larger monthly payment amount. Once the repayment plan is confirmed, you must make the payments for the required time period or your bankruptcy may be dismissed.

Can bankruptcy get rid of my student loans?

Only in extremely rare cases. In a Chapter 7 bankruptcy, all debt is discharged (cancelled) at the end of your bankruptcy unless the bankruptcy code specifically prohibits it. (In a Chapter 13 bankruptcy, you may have to pay off a portion of your unsecured debt through your repayment plan).

This year, total student loan debt in the United States reached $1 trillion – more than credit cards and any other type of consumer debt. At the same time, college graduates’ earnings have declined. More and more students are declaring bankruptcy to help get out from under a mountain of student loan debt. But because of a 2005 reform law, unlike most debt, student loans cannot almost never be discharged in bankruptcy.

To discharge a student loan, you must show that paying it back would be an undue hardship on you or your dependents.  To do this, you must file an adversary proceeding with the court. Specifically, you will have to prove that:

(1) You cannot maintain, based on current income and expenses, a “minimal” standard of living for yourself and your dependents if you are required to repay the loans;

(2) Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period; and

(3) That you have made good faith efforts to repay the loans.

For more information on dealing with student loan debt, consider contacting a Seattle Bankruptcy Attorney.

Weitz Law Firm, PLLC
5400 Carillon Point, Building 5000
Kirkland, WA 98033
(425) 889-9300