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Don't Be In The Dark About Our Legal System

Hello, I'm Karla Mitchell. Going through a legal case can be very expensive and challenging. I won't go into details, but I recently underwent my own legal battle that lasted several years. It is finally over and I successfully received a settlement, but I had to spend so much time studying law in order to play my role in my own court case. While I found a great attorney at one point, I felt completely lost initially and I don't want anyone else to experience the same thing. So I decided to create this blog for those who would like to know more about law.


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Don't Be In The Dark About Our Legal System

3 Ways Chapter 13 Could Help You If You Have An Underwater Mortgage

by Andrew Martin

If you owe more on your home than what it is worth, you have an underwater mortgage. This can occur from borrowing too much money on the home or from a decrease in property values, and it is never a good situation to be in. When your mortgage is underwater, you may experience difficulties repaying your loan on the house, and you could even lose your home to foreclosure if this happens. Filing for Chapter 13 could help you in this situation, and here are three ways it could help.

It Offers An Automatic Stay

From the moment you file for bankruptcy, you will have what is called an automatic stay. This is something that prevents your creditors from coming after you for debts you owe, and it stops a foreclosure dead in its tracks. When you file for bankruptcy, you do not have to request an automatic stay; it will just automatically happen. An automatic stay does not actually remove or reduce your debt, but it makes it illegal for your creditors to call you, email you, or send you letters. It is there primarily to offer you relief from creditors harassing you for the debts you owe.

Once you file for Chapter 13 bankruptcy, you will then have to begin working on a plan to repay the debts you have, and this may include past-due balances you owe your mortgage lender.

It Allows You To Repay The Past-Due Balance Over Time

One key benefit of Chapter 13 over Chapter 7 is the difference in how past-due balances on secured debts are handled. Your house loan is a secured debt, which means your house is collateral for the loan. Any debt that has collateral is considered a secured debt. In Chapter 7, you could lose your home if you are not caught up on the payments you owe your mortgage lender, but this is rarely the case with Chapter 13.

Chapter 13 allows you to set up a plan to repay the current mortgage payments and any arrearage you might owe over time. Typically, this will involve getting on a repayment plan that will last from three to five years.

It May Allow You To Strip Additional Liens On The House

While the first two ways Chapter 13 can help you are important, the third way may be the most important aspect to consider. With Chapter 13, there is a process you might be able to use called lien stripping. Lien stripping is something that allows you to eliminate second and third loans on a house, but you can only use this method if the following conditions apply:

  1. You owe more money on the first loan of your mortgage than the house is currently worth.
  2. You have a second mortgage, or you have a second and third mortgage on the house.

If, for example, you house is currently worth $200,000 and you owe $250,000 on your first mortgage, you would qualify for lien stripping as long as you have at least one other mortgage on the house. Lien stripping would not work in this example if you owed less than $200,000 on your first mortgage.

Chapter 7 bankruptcy does not usually allow lien stripping, which is why using Chapter 13 would be more beneficial if you have an underwater mortgage.

Chapter 13 can help you stop and avoid a foreclosure on your home, and it can offer relief to you from your creditors. If you are interested in learning more about how Chapter 13 could help you save your home and improve your financial state, contact a bankruptcy lawyer today by visiting a site like http://timgeorgelaw.com.