Getting Rid of a Second Mortgage in Chapter 13 Bankruptcy

Drowning in Debt

Drowning in Debt

If your late on your mortgage and you have substantial mortgage arrears then chapter 13 bankruptcy is the best method to straighten out your financial house. A chapter 13 repayment plan allows you to pay back your mortgage arrears in 36 – 60 months. A chapter 13 plan erases the pending foreclosure, removes the mortgage loan default and makes the mortgage loan current.


If your house is under water, a chapter 13 bankruptcy also allows you to erase that second mortgage, even a third mortgage by reducing the creditors claim to the value of the collateral. For example:

House: fair market value $100,000

1st Mortgage: $110,000

2nd Mortgage: $50,000

3rd Mortgage: $30,000

In this example, your house is worth $100,000, 1st mortgage is $110,000, 2nd mortgage is $50,000 and 3rd mortgage is $30,000.  You can erase the 2nd & 3rd mortgage ($80,000) because they are unsecured. The 1st mortgage ($110,000) exceeds the value of the property ($100,000) so there is nothing for the 2nd or 3rd mortgage to attach to, and 3rd Circuit case law permits the debtor to void those junior mortgages in a chapter 13 bankruptcy (In Re McDonald, 205 F.3d 606 (3rd Cir. 2000).

There are $80,000 reasons to file a chapter 13 bankruptcy, instead of a chapter 7 bankruptcy. You can only get rid of a second or third mortgage in a chapter 13 case. The U.S. Supreme Court held in Dewsnup v. Timm, 112 S.Ct. 773 (1992) that a mortgage lien could not be removed in a chapter 7 case.

It’s not easy to get rid of a 2nd or 3rd mortgage in a chapter 13 bankruptcy case but it certainly is worthwhile. Getting Rid of a Second Mortgage in Chapter 13 Bankruptcy. Here is the process:

  1. Order a title search to confirm what liens are filed against your property – Proof of the Lien on your Property.
  2. Organize your payoff statements for any liens on your property – Proof of the Lien Amount on your Property.
  3. Obtain a full blown appraisal by a real estate appraiser – Proof of the Value of your Property.  Check the disciplinary history of the appraiser online as the bank will fight you tooth and nail if the appraiser has a questionable background.  Don’t go cheap, get the expensive appraisal ($400) or the bank will fight you tooth and nail and assert that your appraisal is worthless.
  4. File an Adversary Proceeding aka lawsuit within a bankruptcy case.  The complaint in the AP should object to any proof of claim filed by the mortgagee in the case and request that the claim be re-classifed and the lien satisfied upon entry of a discharge in the bankruptcy case.
  5. Continue to make payments to the 2nd mortgage company during this process as the 2nd mortgage company has a right to receive payments until the entry of the Order.
  6. You need to successfully complete your chapter 13 bankruptcy case. The 2nd or 3rd mortgages are only erased when you complete your chapter 13 plan and receive a discharge in the case.

Good luck.

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