How to Deal With a 2nd Mortgage After Bankruptcy
When you filed bankruptcy the first time, you had the option to keep your home or give it up. When you chose to keep it, it was likely because you thought you could manage the payments once you discharged your other debts. If you're now looking for ways to deal with your second mortgage after bankruptcy, it is likely because you discovered that filing bankruptcy does not guarantee that you won't face new financial difficulties. Fortunately, options exist to help you deal with your second mortgage.
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Instructions
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File a Chapter 13 bankruptcy. If you fell behind on your second mortgage after originally filing a Chapter 7 bankruptcy and receiving a discharge, then you may deal with the second mortgage by filing a Chapter 13. Bankruptcy lawyers often call this practice a Chapter 20 bankruptcy. A Chapter 13 will give you 3 to 5 years to get caught up on your second mortgage payment if you have fallen behind. You should only consider this option, however, if you have the means to pay both your mortgage payments and the Chapter 13 plan payment.
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Ask the court to strip your second lien. Lien stripping is another way of dealing with your second mortgage after bankruptcy. If, after filing a Chapter 7 bankruptcy, paying both the first and second mortgage becomes too cumbersome, you may file a Chapter 13 and ask the court to get rid of the second mortgage. This process is called a lien stripping. This option is only available if your home is sufficiently underwater. For lien stripping purposes, the house is sufficiently underwater if the value is so low that there wouldn't be enough money left to pay the second mortgage if the mortgage company sold the house. For example, if the house's market value is $100,000, the first mortgage is $115,000 and the second mortgages $25,000, then the house is sufficiently underwater and the second mortgage may be stripped.
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Stop paying your second mortgage. If you already filed for bankruptcy and are not interested in filing again, you could consider taking a gamble by not paying your second mortgage at all. Your second mortgage holder generally has just as much right to foreclose on your home as your first mortgage holder; however, it has less incentive to do so in cases where there is not enough equity in the home to pay both the first and second mortgage. Taking this approach is risky, however, because the second mortgage holder could go ahead and foreclose on the property and seek a deficiency judgment from the court. This would allow the second mortgage holder to obtain another lien or even a wage garnishment to recover the amount due after the foreclosure.
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Walk away and file a Chapter 7 bankruptcy. If you walk away from your home and the bank forecloses, it may seek a deficiency judgment against you. A deficiency is the debt you would owe your mortgage company if a foreclosure didn't produce enough cash to payoff the entire amount due. If you received a Chapter 7 discharge in your first bankruptcy, you may re-file and receive another Chapter 7 discharge after eight years have passed. Chapter 7 bankruptcy allows debtors to walk away from all of their non-priority debt. This would include the deficiency amount connected with walking away from your home. If you filed Chapter 13 the first time and received a discharge, you would generally need to wait six years before you could receive a Chapter 7 discharge.
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Tips & Warnings
You should consult an accountant and an attorney to establish which options make the most sense for you.
References
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