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In the current economy, many people own property that has declined in value faster than they have been able to pay their mortgage. This means that their mortgage balance is greater than the true market value of their house, commonly known as an “upside down” mortgage.
For example, say you bought an investment property for $300,000. Later, the value drops to $150,000, but you still owe $250,000 on the mortgage. In this case, you can cram your mortgage down to $150,000, the current value of the property. The remaining $100,000 becomes unsecure debt.
This process is a Cram Down and is a powerful tool for those who are eligible for a Chapter 13 bankruptcy. A Cram Down forces creditors to lower the money a person owes on most secured debts. You can cram down mortgages on your investment properties such as rentals or commercial properties. However, you cannot cram down the mortgage on your primary residence, but you may be able to get rid of your second of third mortgage on your main residence through the process of lien stripping.
To explore your options and see if a Cram Down is the best option for you, contact us today!
…and avoid Foreclosure!
It’s not uncommon for a person to have a mortgage on a home that is worth only a fraction of the actual mortgage amount. Fortunately, there is a process called Lien Stripping that allows you to get rid of unsecured liens on your property.
For example, let’s say that you own a home worth $250,000 with two mortgages. A few years ago your home was worth $350,000 but its market value has dropped due to the recession. The balance of the first mortgage is $270,000 and the balance on the second mortgage is $45,000. In this case, Lien Stripping would allow the second mortgage to be stripped away because the home is worth less than the first mortgage.
In Chapter 13 bankruptcy, a lien strip is possible only if the fair market value of your property is less than the total amount of money due on the first mortgage. In this case, a second and third mortgage can be stripped off the house. By stripping off this lien, which is treated as an unsecured claim, you may be able to wipe out debt in order for you to more easily pay back your existing debt as part of your Chapter 13 payment plan. Lien stripping turns what was secured debt, which must be paid in full in order to keep your property, into unsecured debt, and it will be treated the same as a credit card or unsecured loan in your Chapter 13 case.
Lien Stripping can be tough to understand and you may not know if it is the right solution for you. If you have any questions about the process or want to find out how to avoid foreclosure and keep your home, contact Carrie Hurtik and Associates to schedule a consultation.
Filing for bankruptcy is something that we all don’t ever want to do, but it shouldn’t be seen as the dreaded last result that many people think it is. The decision to file is not always easy, but bankruptcy should not be viewed as the end of the world. Here are the top ways bankruptcy can help.
- Eliminate Debt is as little as 4 months: If you are eligible for Chapter 7, debt can be completely discharged within 4- 6 months and it usually only requires one post-filing trip to the court.
- Creditors Can’t Collect: The moment your attorney files for a bankruptcy petition, harassing calls and surprise visits from creditors and collection agents are automatically stopped. This is called an “Automatic stay” and is issued pursuant to Title 11 of the United States Code § 362. It prohibits creditors from taking any collection actions against you or your assets.
- Get a Fresh Start: After you’ve filed, your slate will be wiped clean. You can apply for new loans and credit cards, and while your bankruptcy filing will remain on your credit history report for 10 years, you can still build up your credit again within that time period. Just because something is reported on your credit report does not mean it will have a negative effect on your credit standing.
- You can keep your Home: When you file Chapter 13 bankruptcy you can keep your home. You will have to start paying your mortgage again after you enter your petition, but you may be able to negotiate a more manageable interest rate. Although you will have to pay back your back-mortgage payments, this can be done over a 3 -5 period. This is a much better option for homeowners than foreclosure.
- No one has to know: You have a right to keep your financial information private from friends, family, and colleagues. The only time your bankruptcy filing will come out is when you are asked for your credit report when applying for new loans or credit cards.