Homes were once considered an investment. But few Tampa Bay area homeowners have any equity in their homes anymore. Thanks to the struggling real estate market and the economy, most actually owe more on their homes than what the home is actually worth and are 'upside down' on their mortgage.
Being upside down on a mortgage means that you are making payments on a debt that is more than the current value of your home. If you are upside down because of a second or third mortgage or a home equity line of credit (HELOC) a Chapter 13 bankruptcy may be the answer to bringing the amount you owe on your home closer to what it's actually worth.
Relief for Underwater Homeowners: Lien-Stripping in a Chapter 13
The foreclosure process can be started when a homeowner defaults or doesn't make payments on the home mortgage or any debt that is secured by the home, including a second mortgage or HELOC. Most people realize that filing for Chapter 7 bankruptcy protection is a way to a fresh financial start allowing elimination of unsecured debt such as credit cards and medical bills. But, many do not understand that Chapter 13 bankruptcy offers a way to eliminate a second mortgage or HELOC completely.
Rather than continuing to throw good money at a bad investment (the second mortgage or HELOC on a home that has lost value), Florida homeowners have the option to lien-strip a second mortgage or HELOC through a Chapter 13 bankruptcy filing. In other words, lien-stripping in a Chapter 13 bankruptcy will allow you to totally eliminate the second mortgage or HELOC debt. In fact, there are homeowners who have no debt other than a first and second mortgage who have chosen to file bankruptcy just to get rid of a second mortgage.
Understanding Florida Lien-Stripping
Lien-stripping can be a difficult concept to understand without an actual example. Let's consider the following scenario:
- Purchase price of the home in, say, 2006: $300,000. This includes a first mortgage of $200,000 and a second mortgage of $100,000.
- Current value of the home today, in 2011: $200,000.
The mortgage lenders are secured only to the actual value of the home; in this scenario the first mortgage is secured for the full $200,000 and the second mortgage is left unsecured because there is no remaining value over and above the first mortgage. Under these circumstances, filing a Chapter 13 bankruptcy allows the second mortgage to be stripped off the home and the homeowner is no longer required to pay that debt off.
But, what does all this mean to the homeowner?
If the amount of your first mortgage exceeds the value of your home, we may be able to remove the second mortgage or HELOC and you won't have to pay it anymore.
Lien stripping may or may not be right for your particular financial situation, but if you are underwater on your home, like so many in the Tampa area, an experienced bankruptcy attorney can explain your debt relief options in more detail.
