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Chapter 13 bankruptcy and mortgages on the home

The most valuable asset most of us from Texas will ever own is our home.  However, during the last few years we have seen more homeowners underwater and looking for ways to get out from their mortgage debt.  

Some individuals have looked towards bankruptcy as a solution without considering all of the complexities.  There are a variety of rules surrounding mortgages of home and the filing for Chapter 13 bankruptcy.  While a distressed homeowner can file to be released on junior mortgages, certain conditions still need to be abided by before this can occur.

Being released on a second or third mortgage requires a showing that the market value of the home has gone down sharply. However, if the value of the property remains even one dollar above what is owed on the first mortgage Chapter 13 may not be an option in being relieved of the obligation of paying the second mortgage. On the other hand, if the mortgage balance is even one dollar greater than the value of the home Chapter 13 might be a tool for eliminating junior mortgages.

Every circumstance surrounding a bankruptcy is unique and requires individual handling. There are circumstances where it would be best to file Chapter 7 rather than Chapter 13 bankruptcy. There also may be any number of reasons for not filing bankruptcy at all.

Inquiries as to what legal route to take should be addressed to experienced bankruptcy attorneys. It's especially useful to know what debts can or cannot be relinquished as a result of any bankruptcy filing. And when it comes to possible foreclosure, these discussions need to take place before it is too late.

Source: Fox Business, "Can Chapter 13 Help Me Get Rid of Second Mortgage?" Justin Harelik, Sep. 11, 2013

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