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).
A Chapter 13 and second mortgage lien can be a great combintation. If the balance of the first mortgage is higher than the fair market value of the home, the homeowner can “strip” the second mortgage lien. This means that after the homeowner successfully completes a chapter 13 bankruptcy plan, the second mortgage lien will be stripped, or entirely removed from the property. The debt that is secured by the second mortgage lien is paid as an unsecured debt (like credit card debt) during the chapter 13 bankruptcy plan. At the end of plan, any remaining unpaid balance is completely discharged, or eliminated. The result of this is that a homeowner is able to completely eliminate a seccond mortgage lien on thier home by completing a chapter 13 bankruptcy. Owners of investment property may also get this relief.