Getting mortgage after a chapter 13 discharge

For a homeowner with multiple mortgages, a Chapter 13 bankruptcy can be essential to keeping a property. In some situations, a judge will order that a second mortgage be removed from your property. This mortgage is then treated like any other unsecured debt (e.g. credit card debt) and can be canceled completely. Before declaring bankruptcy, check if you can withdraw your second mortgage as well as any other junior liens on the property. Then find an experienced bankruptcy attorney who can file a lawsuit for you and ask the judge to remove the second mortgage. However, while a Chapter 13 bankruptcy is better than a Chapter 7 bankruptcy, it should be a method of last resort as it can damage your credit and severely hamper your ability to get a mortgage in the future.

Estimate the value of your home. You will need to prove to the court the value of your home. Each court will accept different types of evidence. However, you should speak to a lawyer to obtain the following:

independent real estate expertise authenticated by the expert 

online listings of equivalent properties

ad valorem tax appraisals

Compare the value of the home to your senior mortgage. To strip a second mortgage, it must be completely unsecured.This means that there is no more value in your home because your first mortgage is worth more than the value of your home. Essentially, you must be upside down on your first mortgage.

Strip more than one mortgage. You may have more than one junior mortgage or other types of junior liens on the property, such as a home equity line of credit or a construction lien. You can remove multiple junior liens if the value of your home is less than the value of your first mortgage. If the value of your home is greater than the value of your first mortgage, you can only remove junior liens if the liens ranking above them have a combined value greater than the value of your home. 

Attend credit counseling. Bankruptcy is a serious decision that can have a huge impact on your financial future. Before filing for bankruptcy, you must take credit counseling. Your advisor can assess your situation and help you understand if bankruptcy is right for you. An advisor can also help you establish a repayment plan. 

Consult a lawyer. Because Chapter 13 is a complicated bankruptcy, you should work with an attorney. The process of removing a junior mortgage is particularly complicated, which is why the help of an experienced bankruptcy attorney is essential.

Find a bankruptcy attorney by contacting your local bar association and asking for a recommendation. Gather your financial documents and schedule a consultation.

You should also hire a lawyer to file bankruptcy for you. Ask the lawyer how much he charges. Often, bankruptcy attorneys will charge a fixed fee.

In Chapter 13, you can roll some or all of your attorney fees into your payment plan, meaning you can pay them off over three to five years. This will make hiring a lawyer affordable.

File your documents with the court. You must file a petition and other forms that list your income, assets, and debts. These forms are called annexes. Your lawyer can complete these documents for you. Be sure to provide them with all up-to-date financial information.

Your repayment plan will treat debts differently. For example, you must pay certain debts in full. These are called “priority” debts and include child support, unpaid child support, and certain taxes.

Depending on your income, you’ll probably only pay a small portion of any unsecured debt, like credit cards. Your Junior Liens will be treated as unsecured debt under the repayment plan.

Attend a meeting of creditorsThe trustee in bankruptcy will call a meeting of creditors 21 to 50 days after you file for bankruptcy. You must attend and your creditors have the opportunity to attend. However, many creditors are unlikely to even show up.

The purpose of the meeting is to ask you questions about your repayment plan and your income. The meeting is an opportunity to confirm the information contained in your documents.

If your creditors want to object to your repayment plan, they don’t do so at the meeting. Instead, they file documents with the court.

File a motion to determine the secured status of the lien. Your attorney will need to file a motion with the court to determine if you can remove the junior mortgages/liens from the property. Your attorney must file this motion before the judge confirms your repayment plan.

Some courts have developed a form that your lawyer can use when filing this petition.

You must provide the lienholder with proper notice of your claim so that they have an opportunity to respond. You must also provide the court with proof that you provided notice. Often this proof consists of a signed statement that you gave the lienholder a copy of your petition and the date it was sent.

You must attend a hearing, where the judge will issue an order conditional that the second mortgage is unsecured. However, you cannot withdraw the mortgage until you complete your repayment plan.

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By Michael Caine

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