Can Bankruptcy Eliminate a Second Mortgage in New York?

With the downturn in the economy after the housing crisis, many homeowners in New York and around the nation found themselves upside down on their home loans.  Home values for millions plummeted to below the amount of their mortgages leaving them with no equity in their homes.  Fortunately for people in this desperate situation, filing for bankruptcy can eliminate their second mortgage entirely and allow them to stay in their home as well.

In most cases a second mortgage cannot be discharged if your first mortgage still has any equity.  You can eliminate a second mortgage if your first mortgage is equal to or more than the full appraised value of your home.  In other words you usually have to be underwater on your first mortgage to be able to eliminate a second.

A second mortgage is often considered to be unsecured debt under the bankruptcy code, whereas your first mortgage is secured with your home as collateral. If you default on your first mortgage the lender can foreclose and take the home, but a second mortgage doesn’t have this power.  Typically, lenders for second mortgages can’t foreclose on your home; they can only use debt collectors to harass you, or maybe sue you in court to try and get their money.

Bankruptcy is the only tool powerful enough to force banks to reduce the principal amounts on your home loans.  Completing a bankruptcy will allow most of our clients to eliminate second and even third mortgages, but it is a complicated legal process that will require the help of a qualified attorney in New York.  Depending on your financial situation and the overall snapshot of your debt problems it is likely that your attorney will recommend filing a Chapter 13 bankruptcy over a Chapter 7.  The repayment plan that is central to Chapter 13 will be completed in 3-5 years and can allow you to stay in your home and eliminate a second mortgage if you can remain current on the new payments.

Eliminating a second mortgage in a bankruptcy in New York should be left to an attorney that has experience with this process.  They will have their work cut out for them with a number of required motions and hearings.  When searching for an attorney be sure to ask if they have any experience in successfully eliminating second mortgages in bankruptcy.

If your debt trouble includes a toxic second mortgage please get the pros and cons of bankruptcy for your case from the Law Offices of William Waldner.  Arrange a free consultation online or by calling 212-244-2882.  We are a personalized firm that offers affordable debt relief assistance for all New Yorkers.  We have a 99% Chapter 7 bankruptcy discharge record in New York City as of 8/31/16, and know exactly what to expect with every consumer bankruptcy case we file before we take it to court.

This article is intended for educational purposes only.  By reading this article no attorney-client relationship has been created.