Can A Personal bankruptcy Lawyer Aid In Reducing Mortgage Debt?

If you have a home loan and you’re underwater in your home or battling to create payments, you might question if personal bankruptcy is definitely an option to enable you to cope with your housing problem. The truth is you might be able to use personal bankruptcy to take down mortgage debt only in limited situations. Generally, you can’t eliminate your mortgage in personal bankruptcy- however your personal bankruptcy attorney might be able to aid you in getting other financial obligations erased or introduced lower to some manageable level so that your home will end up affordable anyway.

When Can Your Mortgage Debt Be Reduced?

It is not easy to possess mortgage debt reduced or eliminated inside a personal bankruptcy since the property can serve as collateral for that loan. Which means that if you do not spend the money for loan, it is to establish for that bank to accept collateral (the home). It wouldn’t be fair for that bank to possess granted the borrowed funds (and also the lower rate of interest readily available for mortgages) based on the house becoming collateral and also to then permit you to keep your home although not pay.

Due to the fact that the house is collateral for that mortgage, you’ll normally have to reaffirm your mortgage debt, compensate for any payments you may be behind on, and then make payments promptly to maintain your home- while you apply for personal bankruptcy.

However, there’s one exception for this. That exception exists in case your home really is not becoming collateral for any second mortgage since the entire worth of it might be easily wiped out to repay the very first mortgage. Consider, for instance a individual who owns a home worth $150,000. If there’s a $150,000 first mortgage around the home along with a $50,000 second mortgage around the home, there is not really any real collateral for that second mortgage. When the loan provider for that second mortgage foreclosed because of nonpayment, the house could be offered and also the entire proceeds would must see remove the first mortgage therefore the second mortgage loan provider would get nothing.

Since the second mortgage is not a real guaranteed debt in these instances, a personal bankruptcy lawyer might be able to aid you in getting this debt reclassified as what it’s- personal debt. This could then mean that could be incorporated inside a chapter 13 bankruptcy repayment schedule and also you could possibly pay under the entire amount the mortgage was for. This method is called “lien stripping.”