GETTING RID OF YOUR SECOND MORTGAGE IN A CHAPTER 13 BANKRUPTCY

In the recent case of In re Melvyn M. BAEZ and Jessica J. Baez, Debtors, Judge A. Jay Cristol of the United States Bankruptcy Court-Southern District Of Florida held that “in a Chapter 13 case, the Debtors are permitted to “strip off” a completely unsecured mortgage encumbering their principal residence”.

In this case the debtors stated that their home was worth $48, 680.00 and that they had three mortgages on the home. They still owed $60,300 on the First Mortgage. The Second Mortgage had a balance of $20,733.80 and the Third Mortgage had a balance of $21,841.42. 

Therefore the Second and Third Mortgages were “completely unsecured”. This means that home was worth less than even the First Mortgage and there was nothing securing the monies owed on the Second and Third Mortgage.

After discussing various other cases the Court held that you can “strip” (i.e. get rid of) junior mortgages on your principal residence if those mortgages are wholly unsecured.

In our economy many of us have purchased homes with both first and second mortgages i.e. 80/20 loans and those homes are now worth much less than even the first mortgage. This case states that if you want to keep your home you can do so and get rid of the second mortgage under a Chapter 13 bankruptcy.