A home is a major purchase that can stretch the financial resources of a Parker resident. It is also, however, often a person’s most valuable asset and a source of financial security for them. A person can choose to secure a second or more subsequent mortgages on their home to pay for home improvements, education costs for their kids, and a number of other expenses when they arise.
First, second, third, and subsequent mortgages can be costly, though, and when a person cannot keep up with all of their payments they may see their home fall into foreclosure. Not long ago this Colorado legal blog discussed how bankruptcy can help individuals stop foreclosure and keep their homes. Now we will briefly discuss how Chapter 13 bankruptcy may help individuals facing foreclosure eliminate their subsequent mortgages.
When a debtor files for Chapter 13 bankruptcy they create a repayment plan to address how they will pay back their creditors. Different loans are granted different statuses, and generally only priority and secured loans must be paid back in these plans. A debtor’s first mortgage will generally be considered secured because they are backed by the homes that they attach to. If, however, the entire value of the home is encompassed into the first mortgage then there is no remaining equity to secure any subsequent mortgages on the properties. Subsequent mortgages may then be classified as unsecured debts and may not have to be repaid in Chapter 13 bankruptcy.
This post is not offered as legal advice and it should not be used as such. Individuals who are facing the loss of their homes through foreclosure should seek their own legal counsel. Bankruptcy options may help them keep their residences and stay in their homes.