Eliminating a Mortgage in Chapter 13 Bankruptcy


In most Oregon and Washington bankruptcy cases, your home mortgage is not affected, and if you want to keep your home, you have to continue the payments. However, there is an important exception to this rule which applies in chapter 13 cases.

If your home is worth less than what you owe on your mortgages, to the point where the second or third mortgage is not secured by your home’s market value, you can remove the mortgage and never have to pay it. Here’s how it works.

Say your home is worth $350,000 and the first mortgage has a balance of $355,000. Let’s also say you have a second mortgage with a balance of $30,000. Because the home is worth only $350,000, the second mortgage is not secured by any value. That is there is no equity in your home above the first mortgage.

A chapter 13 case can remove a wholly unsecured mortgage. In our example, removing the mortgage could not be done if the home were worth $370,000, because then there would be some value securing the second mortgage.

You need to file a bankruptcy court lawsuit or motion against the second mortgage holder to obtain a court order removing the second mortgage. This could involve expensive litigation over your home’s true market value, so many people are reluctant to even try. However, given the dramatic declines in home values in the past couple of years, more of these cases are being filed. Many times, it is so clear that there is no equity to support the second or third mortgage the lender agrees to be stripped off and will not fight over the value of the home. Hackett Law Firm has successfully filed motions and adversary cases against mortgage companies in chapter 13 in order to strip off second mortgages. We have the knowledge and expertise to get this done.

If you feel that you could benefit from stripping off an unsecured second or third mortgage you should seek the advice of an experienced Chapter 13 bankruptcy attorney.