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It is not uncommon
to have a first mortgage and a second
mortgage or a home equity loan on your home. Even though the amount of
the
second mortgage or home equity loan is less than your first mortgage,
the
interest rate that you are paying is usually much higher. You may be
wondering
if there is anything that can be done to reduce these encumbrances on
your pro-
perty. It may mean the difference between being able to keep your home
or
losing it because you cannot afford the payments, or worse, your house
is being
foreclosed on.
The answer is that there are certain situations in which that second
mortgage
or home equity loan can be modified, or as it is known in bankruptcy
language,
"stripped off." The first requirement is that a Chapter 13 bankruptcy
be filed. (Chapter 7 bankruptcies do not allow for modifIcation of a
second
mortgage or home equity loan). How this is done is best illustrated by
the
following examples:
1) You own a house that has a value of $300,000.00 at the time you file
bankruptcy. The first mortgage is $325,000.00. The second mortgage or
home
equity loan is $75,000.00. That $75,000.00 can be "stripped off" and
be treated the same as your other unsecured debt. If your Chapter 13
Plan calls
for paying 10% to unsecured creditors, you will be paying $7,500.00
over the
life of your Chapter 13 bankruptcy, which is between 3 and 5 years. If
your
payment plan is 20%, then you will pay $15,000.00 over that period of 3
to 5
years.
2) In this example, let's also assume that your home is worth
$300,000.00 at
the time you file bankruptcy. The first mortgage is $275,000.00. The
second
mortgage or home equity loan is $75,000.00. The $75,000.00 cannot be
"stripped off." The rule is that if even one cent attaches to equity,
you do not qualify for a "strip off." This means that if your first
mortgage on your $300,000.00 home is $299,999.99 or less, the "strip
off" provision of the bankruptcy law will not help you.
In conclusion, "lien stripping" may be an effective way to save your
home because you are unable to make the second mortgage payments or are
in
foreclosure. You will be able to lower your monthly payments and
eventually
entirely eliminate your second mortgage or home equity loan.
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