Chapter 13 Bankruptcy and Mortgage Relief

Chapter 13 bankruptcy can be used to save a person’s home from foreclosure. In a chapter 13 case, under the bankruptcy code, a debtor can stop the foreclosure case using the automatic stay in bankruptcy, and then propose to “cure” the mortgage arrears over a period of time. It’s a way to use bankruptcy to force your mortgage lender to make a deal you can afford. The chapter 13 bankruptcy plan usually involves making payments to the bankruptcy trustee for 3 to 5 years in addition to making your regular ongoing mortgage payments.

If your home has decreased in value, you are may be able to remove a second mortgage, or “avoid,” or “strip-off,” a second mortgage on your home using chapter 13 bankruptcy. For a Colorado homeowner to take advantage of this provision your home must be worth no more than the first mortgage on the property. If this is the case, then your second mortgage can be stripped using 11 U.S.C. 506 and your second mortgage can then be treated as an unsecured claim, and be discharged upon completion of all of your bankruptcy plan payments.

I recently accomplished both of these things for a client and it went quite well using Linda Spray a local real estate expert for the valuation. My client came to me about 7 months behind on her first mortgage and owing a $30,000 second mortgage which was also in default. This client was able to use a chapter 13 case to pay the 7 months arrears over time, and to get rid of her second mortgage entirely!

This entry was posted in Bankruptcy, Bankruptcy Lawyer Denver and tagged , , , , , , . Bookmark the permalink.