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While the bankruptcy legally may stay on your credit report for up to ten years, you can start rebuilding your credit immediately after discharge. One of the most important things you can do to rebuild is pay the creditors on time that report to the credit bureaus. Secured debts such as houses and cars as well as utilities typically report your payment history to the three major credit bureaus.
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»
Real Estate Law Articles
The current financial crisis,
brought on by the collapse of the housing market has more and more people
looking for solutions to their “under water” property. An “under water”
property is one in which the debt on the property is greater than the value. Today,
millions of homeowner are now upside-down or “under water” on their home mortgage and they are looking for a way out.
With drops in value as much as 40 –
50%, the solution for many homeowners is to simply walk away
without ever exploring ways to save their home. There are, however,
options. They include loan modifications of reduced interest and principal as
well as the possibility of buying or cashing out, at great discounts, lenders
who would rather have cash than take over an underwater property.
One solution that is not given
enough attention, is the possibility of lien stripping a second trust deed
through Chapter 13 bankruptcy. Today, if you own real estate with a second or
third mortgage, chances are you can remove that lien in a Chapter 13 bankruptcy case. This is because with real estate declining
as much as it has, many second mortgages may be considered unsecured and will
be treated as such in Chapter 13.
In a Chapter 13 bankruptcy, which is
plan of debt repayment over time, liens can be stripped off of the debtor’s
assets when there is not enough equity in the asset, after deducting senior
liens from current market value, to secure the junior lien.
Section 506 of the
Bankruptcy Code provides that a lien is only
secured to the extent there is value in the asset to which it attaches. If a
claim exceeds the value of the collateral, that portion of the claim is
considered unsecured. As a result, in Chapter 11 or Chapter 13, even voluntary
liens like mortgages and trust deeds can be stripped down to the value of the
collateral.
There is a significant wrinkle,
however, which greatly limits the ability of a debtor to strip off or wipe out
his or her second mortgage or trust deed. As presently enacted, the
bankruptcy code prohibits the stripping of liens that are “secured only
by a security interest in real property that is the debtor’s principal
residence” 11 U.S.C. 1322 (b) (2)
The effect of this limitation, in
many states, is to completely eliminate the possibility of a lien strip on
residential real property that is the principal residence of the debtor.
By its very language, however, residential property that is held for investment
and not as a “principal residence” may be lien stripped.
Court decisions throughout the
country have also uniformly held that when the debtor has given other
collateral, in addition to the personal residence, as security for the
mortgage, lien stripping will be allowed. Thus, if the second trust deed
is secured both by a debtor’s residence and other collateral owned by the
debtor, be it another piece of real property or even something as simple as
household goods, then lien stripping a second mortgage is permitted.
Finally, in many of the federal
circuits, including the 9th Circuit which encompasses the state of
California, bankruptcy courts have held that in those cases where the
senior lien equals or exceeds the market value of the residence, the
second lien is unsecured and may be stripped. This is because, according to the
judicial interpretation of these circuits, a completely unsecured lien does not
fall within the specific limitations set forth in 11 U.S.C. 1322 (b) (2).
Because the real estate market in
California is in such a state of distress, in many cases even the first trust
deed has a face value in excess of the market value of the real property. In
California and in the other federal circuits which follow this rule,
where the value of the property is less than the amount due on the first, a second
or other junior lien may be stripped off even a personal residence.
So before you make the final
decision to surrender your real property back to the bank, consider consulting
with an experienced bankruptcy attorney and discuss with him the possibility of
lien stripping your second and other junior mortgages. You just might be
able to keep that house of yours without that second mortgage.
The law office of Mitchell Reed Sussman & Associates has specialized in real estate, bankruptcy and business litigation for over 30 years. They can be contacted at www.palmspringslitigationattorney.
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The current financial crisis,
brought on by the collapse of the housing market has more and more people
looking for solutions to their “under water” property. An “under water”
property is one in which the debt on the property is greater than the value. Today,
millions of homeowner are now upside-down or “under water” on their home mortgage and they are looking for a way out.
With drops in value as much as 40 –
50%, the solution for many homeowners is to simply walk away
without ever exploring ways to save their home. There are, however,
options. They include loan modifications of reduced interest and principal as
well as the possibility of buying or cashing out, at great discounts, lenders
who would rather have cash than take over an underwater property.
One solution that is not given
enough attention, is the possibility of lien stripping a second trust deed
through Chapter 13 bankruptcy. Today, if you own real estate with a second or
third mortgage, chances are you can remove that lien in a Chapter 13 bankruptcy case. This is because with real estate declining
as much as it has, many second mortgages may be considered unsecured and will
be treated as such in Chapter 13.
In a Chapter 13 bankruptcy, which is
plan of debt repayment over time, liens can be stripped off of the debtor’s
assets when there is not enough equity in the asset, after deducting senior
liens from current market value, to secure the junior lien.
Section 506 of the
Bankruptcy Code provides that a lien is only
secured to the extent there is value in the asset to which it attaches. If a
claim exceeds the value of the collateral, that portion of the claim is
considered unsecured. As a result, in Chapter 11 or Chapter 13, even voluntary
liens like mortgages and trust deeds can be stripped down to the value of the
collateral.
There is a significant wrinkle,
however, which greatly limits the ability of a debtor to strip off or wipe out
his or her second mortgage or trust deed. As presently enacted, the
bankruptcy code prohibits the stripping of liens that are “secured only
by a security interest in real property that is the debtor’s principal
residence” 11 U.S.C. 1322 (b) (2)
The effect of this limitation, in
many states, is to completely eliminate the possibility of a lien strip on
residential real property that is the principal residence of the debtor.
By its very language, however, residential property that is held for investment
and not as a “principal residence” may be lien stripped.
Court decisions throughout the
country have also uniformly held that when the debtor has given other
collateral, in addition to the personal residence, as security for the
mortgage, lien stripping will be allowed. Thus, if the second trust deed
is secured both by a debtor’s residence and other collateral owned by the
debtor, be it another piece of real property or even something as simple as
household goods, then lien stripping a second mortgage is permitted.
Finally, in many of the federal
circuits, including the 9th Circuit which encompasses the state of
California, bankruptcy courts have held that in those cases where the
senior lien equals or exceeds the market value of the residence, the
second lien is unsecured and may be stripped. This is because, according to the
judicial interpretation of these circuits, a completely unsecured lien does not
fall within the specific limitations set forth in 11 U.S.C. 1322 (b) (2).
Because the real estate market in
California is in such a state of distress, in many cases even the first trust
deed has a face value in excess of the market value of the real property. In
California and in the other federal circuits which follow this rule,
where the value of the property is less than the amount due on the first, a second
or other junior lien may be stripped off even a personal residence.
So before you make the final
decision to surrender your real property back to the bank, consider consulting
with an experienced bankruptcy attorney and discuss with him the possibility of
lien stripping your second and other junior mortgages. You just might be
able to keep that house of yours without that second mortgage.
The law office of Mitchell Reed Sussman & Associates has specialized in real estate, bankruptcy and business litigation for over 30 years. They can be contacted at www.palmspringslitigationattorney.