How can I remove my second mortgage through bankruptcy?

Answer: You might be able to remove a second mortgage from your home in Chapter 13 bankruptcy if your equity does not cover the second mortgage. This is called "lien stripping."

If your home value has declined so that your second mortgage is no longer secured by your equity, the bankruptcy court can "strip off" the second mortgage, or the part of it that is no longer secured, and recategorize the debt as unsecured debt.

Here's an example of a second mortgage that is no longer secured: Your first mortgage is $250,000 and your second mortgage is $25,000.  The market value of your home is $200,000. In this situation, only $200,000 of your first mortgage is secured by the home, and none of your second mortgage is secured by the home.

If the court strips off the second mortgage and reclassifies it as unsecured debt, that debt is lumped with your other unsecured debts and paid through your Chapter 13 repayment plan. Most Chapter 13 debtors pay only a portion of their unsecured debt through their plans -- the rest is discharged at the end of the bankruptcy. 

To learn more about stripping second mortgages through Chapter 13, see How to Strip a Second Mortgage or HELOC in Chapter 13.

In a few states (Alabama, Florida, and Georgia), you might be able to strip off junior liens in Chapter 7 bankruptcy. (To learn more, see our information on removing junior mortgages in Chapter 7 bankruptcy.)

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