Using Chapter 13 Bankruptcy to Eliminate Second Mortgages in Florida

Florida Chapter 13 bankruptcy cases often involve people with two mortgages. Can Chapter 13 help alleviate the pain and stress?

This is one of the most powerful tools in a Chapter 13 bankruptcy case.

With the real estate boom, many Florida residents bought homes with two mortgages. Other people refinanced their homes in Florida and took out either a second mortgage or an equity line of credit.

That was before the real estate meltdown that robbed many Florida homeowners of their equity.

How the Real Estate Meltdown Changed Everything

What It Means Financially When the Equity of Your Property Drops

With the real estate meltdown, some people have homes that are worth much less than what they owe on the total of the mortgages.

In situations where someone owes more on their first mortgage than the value of the property, the second is considered unsecured. This means there is not even $1 of equity in the property securing the second mortgage.

Let’s look at an example. You buy a house for $300,000 and take out a first mortgage for $240,000. You also get a home equity line of credit or second lien for $60,000.

But then the value of the house plummets to $225,000. You owe $300,000 on a $225,000 home. All of the equity is eaten up by Bank 1, leaving Bank 2 in basically the same position as a credit card company.

Has the value of your Florida property dropped dramatically since you purchased it? Do you have a second mortgage? If both of these facts are true, you may be eligible to wipe away all the debt you owe on your second mortgage by declaring Chapter 13 bankruptcy. Contact my law firm today at (407) 749-0080 to schedule a consultation to discuss your options. 

How Chapter 13 Bankruptcy Can Resolve This Dilemma

So how will Chapter 13 help? In this case, we could file a motion or an adversary proceeding in the bankruptcy case to have Bank 2’s loan to be determined to be unsecured. Once the judge agrees that there’s not enough equity to cover the first-place mortgage, the money owed to Bank 2 is paid as if it were a credit card.

In other words, they get table scraps.

As long as you finish your Chapter 13 bankruptcy plan, the mortgage will be wiped away and removed as a lien from your property in the public records.

Even if the lender does respond to this motion, you still have the opportunity to present evidence as to the value of the property and let the judge decide whether your second mortgage is unsecured.

Due to the nature of how your Chapter 13 plan payment is determined, in most Florida cases you will be paying very little toward your unsecured debt (which now includes your second mortgage).

Creditors of unsecured debts receive very little compensation when a debtor files Chapter 13 bankruptcy. Banks know this risk when they offer second mortgages.

It’s a nice feeling to no longer have to write checks for the second mortgage payment. As anyone in Florida knows, this is a huge weight off your shoulders.

Learn More About Your Options

When the value of your property drops precipitously, that can be just the beginning of financial difficulties. Your second mortgage may not be the only bill you have trouble paying. A Florida bankruptcy lawyer can explain your options and help you determine whether Chapter 13 bankruptcy is the right option for your situation.

When bills are piling up and the value of your property isn’t what it used to be, don’t get overwhelmed. Call my law firm at (407) 749-0080 immediately to schedule a consultation about the advantages of Chapter 13 bankruptcy.

Attorney Lewis Roberts

The weight of debts that one cannot pay carries financial stress into every waking moment. It is time for this to end. Lewis Roberts, PA, offers solutions to relieve these worries. With over 20 years of experience in helping individuals overcome the burden of debt, bankruptcy attorney Lewis Roberts presents a range of options tailored to each unique situation. Clients can trust his advice on any matter related to debts, as he identifies appropriate options and explains the paths to debt relief clearly and carefully. This ensures that clients make the best decisions for their future. [ Attorney Bio ]