If the principal balance of your first mortgage is more than the appraised value of your home you have a good chance to eliminate your second mortgage in a chapter 13 bankruptcy through a procedure called a "cramdown." What happens is your second mortgage gets treated as being wholly unsecured and is treated as the rest of your unsecured debt (i.e., credit card and medical bills). For most chapter 13 debtors this means you only pay back a fraction of what you owe on the second mortgage over a period of 3-5 years. In many cases you only pay back as low as 10%. This is accomplished through what is called an adversary proceeding in which I would file a lawsuit while you are in bankruptcy and submit an appraisal of your home showing the value as less than what is owed on the first mortgage. In most cases the debtor is successful. The bankruptcy Judge determines the debt is unsecured and at the end of the bankruptcy your second mortgage is paid off.
Eliminate Your Second Mortgage if Your House is Underwater
by John Peter Brooke on Dec. 03, 2014
Summary
Debtors in a chapter 13 bankruptcy can eliminate second mortgages if their house is worth less than what is owed on their first mortgage. This is called a 'cram down' and the debtor usually only has to pay back a small percentage of what was owed over 3-5 years.
