The right to erase a 2nd mortgage in bankruptcy is the greatest power afforded to a debtor under the bankruptcy laws.
A debtor is not allowed to touch the 1st mortgage on their home but they are allowed to erase the 2nd mortgage on their home if their house is underwater and there’s no equity attaching to the 2nd mortgage.
Let me explain – let’s say your house is worth $200,000 and your 1st mortgage is $210,000 and your 2nd mortgage is $50,000. Under the bankruptcy laws, you are allowed to erase that 2nd mortgage in this example because no equity attaches to the 2nd mortgage.
In this example, the 2nd mortgage becomes an unsecured claim in your Chapter 13 bankruptcy case and they are paid pennies on the dollar largely based upon your disposable income.
A Chapter 13 bankruptcy is a great way of erasing a 2nd mortgage along with the rest of your unsecured debt.
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