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Stripping Junior Mortgages and Home Equity Lines of Credit

March 20, 2013

How does bankruptcy stop home foreclosure?

Part 3 – Stripping Junior Mortgages and Home Equity Lines of Credit

Welcome to Part 3 in a 3 part series on how bankruptcy can stop home foreclosure.  In Part 1 we defined what foreclosure was and alternatives methods to stop a foreclosure.  In Part 2 We discussed the Automatic Stay, and how the filing of the bankruptcy case automatically stops all foreclosures.   In Part 3 we will talk about what to do if it is not your first mortgage that is causing problems.  It’s a second mortgage or a home equity line of credit that is in default and that creditor is threatening foreclosure or you simply cannot afford a 2nd or 3rd mortgage payment.  Sometimes it isn’t the primary or first mortgage that is the problem.   Increasingly, debtors have 2nd and 3rd mortgage payments, or lines of credit that are secured by the home.  If you are like many Americans, the value of the home that is pledged as collateral has fallen so low, that the total balance due on the first mortgage is more than the property is worth.  There is no equity in the house.   In this case, a Chapter 13 bankruptcy can permanently stop foreclosure on the second mortgage and can even eliminate the 2nd, 3rd or line of credit loans and mortgages altogether.

If the payoff balance on your first mortgage is greater than the value of your home, your Chapter 13 Plan can propose to “Strip Off” all other loans and their mortgages.  If you complete that 3 to 5 year plan, your 2nd, 3rd and equity line lender’s debts will be discharged, and they will have to remove the mortgage liens on your property.   You’ll only have the first mortgage to contend with and since you have been making regular payments to the first mortgage the balance will be lower and hopefully, the value of your home may have increased.   At the end of the case, you might find that you have equity in the home again.

The decision to file a bankruptcy or to pursue other alternatives to foreclosure is a complicated one.  For that reason, it is important to get the expert help that you need from the attorneys at Resnick & Moss, P.C. to help you make the right choices and achieve the best outcomes.   If you think that you may be facing foreclosure, or you have more than one mortgage on your home and cannot make your payments, please do not hesitate to call, Resnick & Moss, P.C.  (248) 642-5400 for a free telephone consultation or contact us using our contact form.

Filed Under: Michigan Bankruptcy

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Our firm’s practice areas include:

  • Appeals
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  • Business Law
  • Chapter 7 Bankruptcy
  • Chapter 9 Bankruptcy
  • Chapter 13 Bankruptcy
  • Construction Law
  • Contracts
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