Second mortgages and bankruptcy

In 2015, the US Supreme Court ruled that Second Mortgages and Home Equity Lines of Credit may not be dischargeable in bankruptcy even if the entire amount of the loan is underwater.

By underwater, we mean that the value (FMV) of the home is less than the amount of the first mortgage.

Until this recent court ruling, the second mortgage could be “stripped out” and converted from a secured debt to an unsecured debt under Chapter 13 rules. Stripping out a debt means that a debtor could “wipe out” that loan in bankruptcy and enable the debtor to avoid having to pay it back.

This is a big victory for banks and a major defeat to the homeowner in bankruptcy. As a result of this ruling, any homeowner seeking to hold on to his/her home, he/she will have to pay back both the first and second mortgages, without regard to how much the total debt is in excess of the property value.

This ruling is not only devastating to individual homeowners, it may cause disastrous results in regions such as central Florida where 23 % of the state’s underwater homes have second mortgages.

We will likely see more foreclosures and more Chapter 7 filings,  causing many homeowners to lose their homes. The Supreme Court decision leaves the homeowner no other option but to walk away from their property. This ruling may help the big banks, but it will really hurt the individual homeowner who is certainly not “too big to fail.”

Contact Jeffery Weinstein PC today for more information on mortgages and bankruptcy.


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Frequently, clients want to know if they can keep their car when they file a bankruptcy. Under chapter 13, generally, a debtor can hold on to all their assets. Retaining assets is only an issue under Chapter 7 Bankruptcy.

As stated previously, the law provides a list of “exemptions” that allows a debtor to hold on to various assets when he files. In January 2011, the law changed to increase the vehicle exemption from $2500 to $4,000. This means that if your car is worth $4,000 or less, your car is protected from creditors. If your car is worth $20,000, but you have a note for $16,000 on the car, you can keep your car because your equity is only $4,000.

Now, if you owe more than the car is worth, there is another attractive option. When you file Chapter 7 Bankruptcy, you may apply for the refinance of your car under the 722 program. If you have enough income to cover the loan payments, you can get a loan modification for the book value of the car and the bank will reduce the total amount you owe and dramatically reduce your monthly car payments.

For more information email me at or call me at 212-693-3737 for Free Consultation

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