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Filing Chapter 13 May Not Eliminate Secondary Loan Debt

Posted on May 4th, 2014

During the credit crunch of the last few years beginning in 2008, many homeowners in Arizona took out home equity or other secondary loans to make ends meet. Even with such measures, many people have still faced financial challenges and have had to file Chapter 13 bankruptcy. The Chapter 13 option to get out of debt is not as rewarding as it once was for homeowners looking to get out of debt and save their homes from foreclosure.

A recent pricing increase within the housing market has affected the options available to consumers who are in over the heads financially. A Chapter 13 bankruptcy filing allows homeowners to eliminate junior or secondary mortgages or deeds of trust as long as the market value of the house is worth less than what is owed on the first mortgage.

Increasing housing values have eliminated this option in many cases. If the value of the home is even $1 more than what is owed on the primary mortgage, then the junior mortgage may not be discharged through a Chapter 13 filing. Homeowners must consequently seek an alternative option for debt relief if they are upside down in their mortgages.

Debt relief does not have a one-size-fits-all solution. Phoenix area lawyers knowledgeable about bankruptcy law and the ever-changing real estate market in Arizona may be able to help homeowners and other individuals obtain relief for their financial challenges. Experienced lawyers could present a number of scenarios to their clients and may be expected to advise and help them explore the many alternatives.

Source: Fox Business, “Can chapter 13 help me get rid of second Mortgage?“, Justin Harelik, September 11, 2013

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