Consumer Law Center of Maryland
Free Consultation 888-463-3520 11403 Seneca Forest Circle, Germantown, MD 20876

How Chapter 13 Can Help You Strip a Second Mortgage

The chapter 13 post-it

If you’re like many homeowners, your home is one of your most cherished possessions. You’ve made countless memories there with your family and have put thousands of dollars (and almost as many hours) into making it look and feel like home. If you’re having difficulty keeping up with first and second mortgage payments, you might be wondering whether filing for bankruptcy would result in you losing your home. In fact, filing for bankruptcy under Chapter 13 could give you a way to get current on your home loan payments while stripping away secondary liens on your home.

Junior lien stripping

Debtors filing for Chapter 13 bankruptcy in Maryland who own a home with multiple mortgages may be eligible for a process known as “lien stripping.” Lien stripping allows homeowners whose first mortgage balance is greater than the current value of their home to strip off liens that are junior to that first mortgage. Since the first mortgage is encumbering all of the home’s equity, the second mortgage will be considered unsecured. This means that you won’t have to continue making separate payments on that debt during your bankruptcy, and gives it the same priority as other unsecured debts such as credit card and medical debt. Lien stripping is available only under Chapter 13 bankruptcy filings, and not Chapter 7.

Lien stripping in action

For example, let’s say that you own a home worth $325,000, but owe $385,000 on your primary mortgage. You took out a second mortgage a few years ago for $30,000, but have fallen behind on payments toward both mortgages after an illness in the family caused you to incur a large amount of medical debt. If you file for bankruptcy under Chapter 13, you’ll have an opportunity to become caught up with payments toward your first mortgage, and your attorney can help you request that the second mortgage be stripped from your home’s title. If the judge approves, this means the second mortgage will be included among the other debts towards which you’ll pay during your payment plan. At the end of the plan, any amount remaining due on that second mortgage will be written off, along with your other remaining unsecured debt.

If you’re a Maryland resident concerned about how you’ll keep your home when debts start to mount, contact a dedicated, thorough, and compassionate Germantown bankruptcy lawyer at Haeger Law for a consultation, at 888-463-3520.