Chapter 7 And Chapter 13 For Underwater Homeowners

The real estate boom was marked by hope and seemingly endless growth. Encouraged by ever-soaring housing prices and mortgages that were incredibly easy to get, many homeowners found themselves in homes that were more expensive than they'd planned.

Then, when the market began to fail and these homes dropped in value, the same homeowners found themselves paying more than the homes were worth. They often struggled to manage multiple mortgages or home equity lines of credit. Many worried about the threat of foreclosure. Others intentionally walked away from their homes, knowing that the decision would have a negative impact on them — but not knowing where else to turn.

If you are underwater on your mortgage, turn to the Morristown, New Jersey, law office of Ast & Schmidt, P.C. With a history of helping homeowners reach financial solutions, we are dedicated to pursuing the best possible results for people who owe more than their homes are worth.

Depending on your situation, we may be able to help you resolve your debt through Chapter 7 or Chapter 13 bankruptcy proceedings:

  • Chapter 7 bankruptcy: Chapter 7 looks to discharge your debt, including your personal liability on your mortgage note and home equity lines of credit. It is a relatively quick proceeding with many filers in and out of courts in as little as four months. This choice, however, does not provide for the methods of resolving the mortgage arrears or the house being under water. It eliminates the personal liability so that the mortgage company cannot pursue the deficiency claim if you decide to let the home go.
  • Chapter 13 bankruptcy: Chapter 13 allows filers to set up a payment plan for repayment of debts, in whole or in part. The payment plan generally lasts three to five years. In Chapter 13, however, underwater homeowners may seek to have their second mortgages removed by the court. This is a tremendous advantage for people who are struggling to keep their home.

Lien Stripping And Chapter 13 Bankruptcy

When a bankruptcy court removes your second mortgage, it is known as "stripping" of the lien. Lien stripping generally may be utilized when the property does not have enough equity after deducting the primary mortgage from the property's current market value.

For example, imagine that a homeowner has a property worth about $200,000. The borrower has two mortgages on it. The first mortgage balance is $210,000, and the second mortgage balance is $50,000.

While the first mortgage lender is secured by the value of the collateral — the value of the house — the second lender has nothing to secure its loan. It's considered to be an unsecured loan, and the court can have it stripped off. During the Chapter 13, you do not have to make your regular monthly payments to this lender. After your debts are discharged in bankruptcy, you will not have to pay the $50,000 lien when the house is sold.

How much will I have to pay in a Chapter 13 bankruptcy? In order to answer this question, we'll need to review your finances. Chapter 13 involves a payment plan. Everyone pays a different amount, depending on certain factors. The amount you will pay depends on your means test. It also depends on what your creditors would receive in Chapter 7, as well as your actual current budget.

Contact A Morristown Bankruptcy Attorney

Call Ast & Schmidt, P.C., at 973-984-1300 to schedule a free, initial consultation with an experienced bankruptcy lawyer. You may also simply complete our online contact form.

We offer flexible hours — Monday through Friday — with all meetings by appointment. Evening meetings are available. Our office is conveniently located across the street from the Morris County Mall, and we have off-street parking.

Ast & Schmidt, P.C., is a debt relief agency. We help individuals file for bankruptcy relief under the Bankruptcy Code. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.