I AM PRESENTLY BEHIND ON MY FIRST AND SECOND MORTGAGE PAYMENTS. WHAT IS KILLING ME IS THE $500 MONTHLY PAYMENT ON THE HOME EQUITY LOAN. CAN YOU GET RID OF THAT PAYMENT?
Under the law in the 3rd Circuit, if you have a home worth $200,000 and the balance due on the first mortgage is higher than the market value of your home, you are allowed to strip down the second mortgage in a Chapter 13.
If you have an investment property, which is not your principal residence, you can strip down the mortgage to the fair market value of the property, but that would have to be satisfied over five years, which is the longest a Chapter 13 plan can proceed.
Stripping Your Junior Mortgage
If you have a first mortgage with Wells Fargo for $200,000 and your home is only worth $180,000 then any junior mortgage can be stripped in a Chapter 13 plan. After you complete the plan over the five years, the junior mortgage will be discharged.
So if you are in a situation where you are paying $1,500 per month on the first mortgage to Wells Fargo and are behind $7,500 and you have a second mortgage with TD Bank for $50,000, you can propose a plan payment of $200 for 60 months to cure the arrears on Wells Fargo and wipe out all your unsecured debt (which includes TD Bank) at the end of the five years.
Saving Your Home
Unsecured debt plus the second mortgage is cancelled after you satisfy your plan. Please note there are a lot of factors to get a plan confirmed at $200 per month. In this hypothetical, this would substantially help Mr. Doe save his home, wipe out the second mortgage and all the unsecured debt.
Thus, if you have difficulty paying a junior mortgage and your home is worth less than you owe on the balance of the first mortgage, you may be able to cancel the junior mortgage if you can meet your proofs.
Get in Touch with Questions
If you have any questions concerning any type of bankruptcy filing, please contact the author.
Steven N. Taieb, Esq. has been a South Jersey Bankruptcy Attorney for over 34 years and is board certified in consumer bankruptcy law by The American Board of Certification which is accredited by The American Bar Association.