Until now, an Orlando chapter 7 bankruptcy has not done much to help a homeowner with an unsecured, or “underwater,” second mortgage on their property. (These mortgages are also commonly known as HELOCS, or Home Equity Lines of Credit.) In an Orlando chapter 7 bankruptcy, the courts have refused to remove a second mortgage lien, even though the chapter 7 bankruptcy eliminates all mortgage debts. Even after the chapter 7 bankruptcy is over, and the homeowner is granted a discharge of all debts, including mortgage debt, the mortgage liens remain on the property until the lender is repaid. (First mortgage liens can never be removed in a chapter 7 bankruptcy).
Today was a good day for my client, who has been in chapter 13 bankruptcy since January of this year: her chapter 13 plan was approved by the bankruptcy court. When she first came to my office to speak with a bankruptcy attorney , she didn’t know she needed a chapter 13 bankruptcy. She only knew that she didn’t have enough income to pay her debts, and that it was likely that she would never pay them off with her salary from the Orange County School System. She had heard about chapter 7 bankruptcy and thought that would help her discharge excessive credit card debt and give her a fresh start in her financial life. What she didn’t know about is how she could significantly improve the mortgage financing on her home, by stripping the second morgtgage lien. It took me some time to help her understand that a Chapter 13 plan was the best option for her.