It’s no secret that real estate prices, including homes, have plummeted in recent years.  If you purchased your home during the real estate boom, you might have both a first a second mortgage.  It’s a shame that the property may no longer be worth what is owed on the first mortgage.  However, there’s good news too.

If the home is worth no more than the first mortgage, then as a Chapter 13 bankruptcy debtor you may be able to strip the lien  of the second mortgage from the home.  You just went from being completely underwater to having a chance to create equity every month with your payments.

The Eleventh Circuit Court has found that a second mortgage  lender’s lien could be stripped off of the primary residence only if the collateral was worth no more than the first mortgage.  This is true because the second lien is wholly unsecured when the first mortgage is greater than the value of the home.  (You can find the court case at Tanner v. First Financial, Inc., 217 F. 3d 1357 (11^th Cir. 2000).

Therefore, it is extremely important to value your home correctly when you go into a Chapter 13.  The bankruptcy in Knoxville will evaluate the value of your home and if it is less than the amount of the first mortgage, then you can strip the second mortgage and treat that creditor as unsecured in your Chapter 13 repayment plan.  This is just one of many reasons you need to be sure you speak with an experienced bankruptcy attorney if you are thinking about filing a Chapter 13 case.

Homes in Knoxville, Sevierville, and Maryville are all eligible for this potential lien stripping action.  The lien can be stripped as part of the Chapter 13 plan however it needs to be completely disclosed in the plan so the creditor has notice.

One other thing that is important is that even if you confirm a plan that strips the lien of the second mortgage holder, if you fail to complete all of the payments under the confirmed Chapter 13 Plan then the lien is reinstated.  I offer a free consultation so that we can discuss the likelihood that you can remove the second mortgage on your home using Chapter 13.