It depends. And so the first thing we need to realize is if we’re going to attack a second mortgage and try and have the discharge apply to it, which means you wouldn’t have to pay it, we have to be in Chapter 13. And so here are the requirements to get rid of a second mortgage, and it’s a simple liquidation analysis: If the fair market value of your home is less than what you owe to the first mortgage holder, then we can get rid of the second mortgage.
So let’s just think about that for a second, and I’m going to make up some numbers. If you have a house and the fair market value of the house $200,000, and the first mortgage holder is due $250,000, well, if that house got sold, the first mortgage holder would get all the money. It sells for $200,000, they’re owed $250,000, so there’s no money left over to pay a second mortgage holder. If that is the circumstance that you’re facing, then, yes, we can get rid of the second mortgage. In the business it’s known as a “lien strip.” So we file a Chapter 13 bankruptcy and then we open what’s called an “Adversary Proceeding” and we file a complaint that alleges that the fair market value of your home is less than what’s due on the first mortgage and, therefore, the second mortgage holder is stripped of his status as a secured creditor and he becomes a general unsecured creditor. Sometimes it is the reason to file a Chapter 13 bankruptcy.
I have clients who have $80,000 home equity lines of credit on their house and it’s available for a lien strip, and so we always for them file a Chapter 13 because there’s an additional $80,000 benefit in the bankruptcy. So imagine if you have someone with an $80,000 HELOC that is strippable, and they have $30,000 or $40,000 in credit card debt, well, the discharge that we will obtain applies both to the HELOC and to the credit card debt; it’s a gigantic advantage for the consumer, my client, that’s why we do it and it makes a Chapter 13 worthwhile.
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