Eliminate Your Second Mortgage in a Chapter 13 Bankruptcy Case

Author: Joe Pioletti Posted on: . Filed in: Bankruptcy.

Filing bankruptcy accomplishes several goals. It stops creditor harassment, collection efforts, foreclosure, repossession, and lawsuits. However, what is more important is what bankruptcy provides to a debtor. Bankruptcy provides a fresh start and a clean slate for an individual who has been struggling to pay his or her bills while providing for the basic necessities of life. There are many reasons why someone may need bankruptcy assistance but the result is the same — a new beginning to recover, rebuild, and restore.

Motion to Value a Second Mortgage

When you file a Chapter 13 bankruptcy case, you must propose a plan of reorganization detailing how you intend to restructure your debts over a three to five-year period. The plan contains many elements including your intentions regarding your home. Most people who file Chapter 13 have at least one mortgage on their primary residence. In many cases, they are behind on their mortgage payments and may be facing foreclosure. The bankruptcy stops the foreclosure and allows the debtor to repay the mortgage arrearage over the term of the plan. This allows the debtor to keep the home and avoid foreclosure.

Some debtors have two or more mortgages secured by the primary residence. If the debtor is behind in the payments on a second mortgage, the arrearage on the second mortgage can also be caught up through the bankruptcy plan. However, if a debtor cannot afford to continue making the second mortgage payments, there may be an option to value a second mortgage at zero.

In order to eliminate a second mortgage in Chapter 13, the value of your home must be less than the payoff on your first mortgage. If the payoff on the first mortgage is even $1.00 under the market value of your home, you cannot eliminate your second mortgage. By providing a current appraisal or other acceptable evidence that the value of your home is less than the payoff on your first mortgage, you may be able to value the second mortgage at zero. If you are successful, the balance you owe on your second mortgage will be treated as an unsecured debt and the mortgage company will receive the same percentage as other unsecured creditors in your plan.

For example, if you are paying a distribution of 10% to your unsecured creditors, your second mortgage company will only receive 10% of its debt through your bankruptcy plan. When you successfully complete your bankruptcy plan, receive your discharge, and your case is closed, the second mortgage lien will be released and you will not be required to repay the remaining balance owed on the account to the mortgage company. This only applies to second and subsequent mortgages. You cannot value your first mortgage at anything other than what is actually owed on the account.

If you have questions about eliminating a second mortgage in Chapter 13, contact our office to schedule a free bankruptcy consultation.

Contact Our Office for a Consultation with an Experienced Illinois Bankruptcy Attorney

The bankruptcy lawyers of Pioletti & Pioletti represent individuals who need help solving their debt problems. We assist clients throughout McLean, Woodford, Tazewell, and Peoria counties by providing compassionate, competent legal services. Contact our office at 309-938-4838 to schedule your free consultation.

When you need the assistance of an experienced bankruptcy attorney in central Illinois, call Pioletti & Pioletti. We are dedicated to providing our clients with exceptional service and support throughout the bankruptcy process.

Joe Pioletti

Joe Pioletti

Attorney Joe C. Pioletti was born and raised in Eureka, IL.Joe received his Bachelor of Arts Degree in Business Management from Eureka College where he also minored in Spanish.Joe then received his Juris Doctor from Southern Illinois University School of Law.While in law school Joe worked in the Domestic Violence Advocacy Clinic and was a three-time recipient of the Charter Class Campaign for Academic Excellence Scholarship.
Joe Pioletti