What Happens to My Second Mortgage in a Chapter 13?
Our clients seek to file Chapter 13 bankruptcies for many reasons. From stopping a garnishment to paying non-dischargeable tax debt, our clients are usually able to find constructive relief in a Chapter 13. However, there are other reasons to file a Chapter 13 that clients are perhaps not aware of.
Many clients find themselves saddled with a second mortgage on their residence. Often, clients are having difficulty meeting this financial obligation on top of their first mortgage payments. However, if the balance of a first mortgage exceeds the fair market value of the residence, a junior mortgage can be “avoided” or “stripped” from the residence. This can only be accomplished within a Chapter 13 bankruptcy.
Frequently, a judgment against one of our clients can sometimes result in a judgment lien being filed against their residence. This lien attaches to the residence and the property cannot be sold without the resolution of this lien. However, under the Ohio Revised Code, debtors in a bankruptcy are afforded a “Homestead Exemption” on their residence ($132,000.00 per debtor).
This means that if the balance of the outstanding mortgages on the property PLUS the Homestead Exemption exceed the value of the residence, the lien can be avoided/stripped from the residence. This can be accomplished within a Chapter 13 or a Chapter 7 bankruptcy.
Consensual liens such as mortgages may only be removed by an adversary proceeding (or a lawsuit within the bankruptcy case). Judgment liens may be removed by a motion filed within the bankruptcy case.
The purpose of a bankruptcy is to provide our clients with a fresh start. The ability to remove burdensome second mortgages and judgment liens from our clients’ homes is an effective way to achieve this result!
Contact our Columbus bankruptcy lawyers today for help.