Can’t Modify Your Loan? Consider Bankruptcy to Discharge Second Mortgage

The U.S. Department of the Treasury and the Department of Housing and Urban Development’s Home Affordable Modification Program was created to help homeowners avoid foreclosures through mortgage modifications. For people unable to modify their second or third mortgages, however, filing for Chapter 13 bankruptcy is an option that can help them keep their homes.

Foreclosure Crisis

According to the Department of the Treasury, unless there is a significant change in course, eight to 13 million foreclosures will happen from December 2010 through 2012. A real-estate industry researcher, Corelogic, estimates that at least 20 percent of U.S. mortgages – about 11.8 million homes – have total mortgage debts that exceed the value of the homes.

Mortgage modification can help people struggling to make payments by reducing the mortgage principal, extending the repayment period to create lower monthly payments or making other changes agreed upon by the lender and borrower. But, many borrowers are unable to modify their loans. For those who do not qualify for loan modification, Chapter 13 bankruptcy may provide relief.

Chapter 13 Bankruptcy

Chapter 13 is a bankruptcy option for people with regular sources of income. Through Chapter 13 bankruptcy, individuals create plans to repay all or part of their debts over three to five years.

Filing for bankruptcy stops any foreclosure proceedings, and in Chapter 13 bankruptcy, second and third mortgages may be discharged. In most cases, a homeowner may discharge a second mortgage as long as the remaining balance on the first mortgage exceeds the value of the home. However, all payments that come due on the first mortgage during the repayment-plan period must be made on time.

Many states have unique laws that affect what is possible for people in Chapter 13 bankruptcy and which assets are protected from foreclosure. If you are facing foreclosure or straining to make ends meet, contact an experienced bankruptcy lawyer in your area to discuss your options and whether bankruptcy is right for you.

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Attorney Joel R. Spivack is an experienced bankruptcy and residential real estate transactions lawyer in Cherry Hill, New Jersey. Clients come to us for legal services, but what we really provide is peace of mind. For more than 30 years, Attorney Spivack has helped people make wise, informed decisions about bankruptcy filings, debt relief options and residential real estate transactions.
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