Bankruptcy Law Changes Make it Easier to Wipe Out Second Mortgages and Lines of Credit Against Your Home



By Omar J. Arcia, Esq.
Foreclosure Defense and Consumer Bankruptcy Protection Attorney

Until recently, the only way a homeowner could wipe out a second mortgage or line of credit on his/her home was through the use of a Chapter 13 bankruptcy petition and plan that may require monthly payments for as long as sixty (60) months.  However, now a Homeowner may also wipe out second mortgages and lines of credit through a Chapter 7 bankruptcy which does not require monthly payments.  

According to an important bankruptcy appellate court decision, a homeowner who has taken out a second mortgage or line of credit against their home would be able to extinguish that lien by filing a Chapter 7 bankruptcy, and demonstrating that the amount owed on the first mortgage exceeds the value of the property. When a judge removes mortgage liens from a property during bankruptcy proceedings it is referred to as “lien stripping.”  Bankruptcy courts must now follow a “bright line” rule in all Chapter 7 cases which makes a second mortgage totally unsecured if the first mortgage exceeds the value of the personal residence.

To qualify, the court will require proof that the home is appraised for less than the value of the first mortgage, which can be established through a certified property appraisal that is accepted by the court. In an environment where home prices in most markets have fallen at least 40% or more, many South Florida homeowners qualify for this option, and should take full advantage of this major change in bankruptcy law.

There are several key benefits from this critical change in bankruptcy law for the homeowner stifled with debt.  First, the time required to complete a Chapter 7 bankruptcy and get a “fresh start” can be as little as four months, whereas a Chapter 13 bankruptcy case may take as long as five (5) years.  Second, the costs and fees of a Chapter 7 bankruptcy is only a fraction of those associated with a Chapter 13 plan and petition.  Third, unlike a Chapter 13, a Chapter 7 bankruptcy allows you to wipe out an unlimitedamount of credit card and other unsecured debt, like medical debt and outstanding mortgage debt from a prior short sale or foreclosure.  Most importantly, none of your creditors will be able to contact you, harass you with annoying phone calls, or proceed with any foreclosure during the bankruptcy protection period.

The Arcia Law Firm is privileged to successfully represent dozens of homeowners in our community in both Chapter 7 and 13 bankruptcy cases, as well as, foreclosure defense, homeowner’s association defense, short sales, and loan modifications.  More detailed explanations of different options available to homeowners in foreclosure, at risk of foreclosure, or considering bankruptcy are discussed in a new instructional DVD developed by the Arcia Law Firm entitled “Fight For Your Home.”  If you mention that you heard about the DVD through this BLOG you will receive a FREE copy when you make an appointment to discuss your case in detail with a member of our qualified legal team.  You may contact the Arcia Law Firm at 1-800-770-7102 to schedule a free consultation, or for more information and to make your appointment online.

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