Going From 2 Mortgages to Just 1
The powerful tools available to homeowner in a Delaware Chapter 13 Bankruptcy is the ability to “strip” the second mortgage on their residence. With the real estate market having a downturn and the value of properties going down a word to wise is to look at whether you get rid of… yes get rid of your second mortgage. This is how it works… when you purchased your home, you like many others got two mortgages. The first mortgage was for $80,000 and the second mortgage was for $20,000. However, due to real estate market and the current market prices of homes in your area, if you were to sell your home, you would not be able to sell your home for more than $75,000.
In this situation, you could file a Delaware Chapter 13 Bankruptcy and strip or get rid of your $20,000 second mortgage. The reason is under the Bankruptcy Code, the second mortgage would be reclassified and wholly “unsecured”. By that the Code means that the value of the home is taken up by the first mortgage, therefore there is not value in the home to secure the second mortgage. Therefore, the Code will treat that second mortgage as they would a credit card and typically in a Bankruptcy, credit card creditors get very little or nothing. If this mortgage is stripped, then you don’t pay it during your Delaware Chapter 13 Bankruptcy plan period (usually 3-5 years) and it is discharged (meaning you no longer have a legal obligation to pay it …ever) at the end of your plan period
So… the morale of the story is, you may start out in a Delaware Chapter 13 Bankruptcy with two mortgages but depending on the value of your residence, you may be able to get rid of the second, permanently.