How to Free Yourself From a Second Mortgage in Bankruptcy

home and gavelThe Eleventh Circuit Court of Appeals has ruled that Florida homeowners can eliminate a second mortgage during Chapter 7 bankruptcy.

Underwater homeowners include individuals who bought their homes during the peak of the housing bubble in 2008 and 2009, and now find themselves saddled with two mortgages, the combined value of which is greater than the current value of their home.

When a home is mortgaged for more than it’s worth, it’s hard to get relief from high or rising payments because the home is not affordable to sell and many times it won’t be approved for short sale without a substantial amount of cash on the part of the homeowner.

The way the ruling works is that if a homeowner has two mortgages and the home isn’t worth their combined value, the second mortgage is no longer secured debt since the value of the house has fallen below the amount of the mortgage. Since it’s not secured, it can now be stripped off in Chapter 7 bankruptcy.

In Chapter 7 bankruptcy, an individual’s non-exempt assets may be sold off to help pay down debt. Individuals are allowed to keep their primary residence as long as they are current on the payments. During the bankruptcy process, secured debts, or debts that finance a valuable asset, take priority over unsecured debt when it comes to payment of creditors. In the past, this was only allowed in Chapter 11 or Chapter 13 bankruptcies, where individuals were required to pay down debts on a payment plan.

Please keep in mind that every case is different. If you have questions about Chapter 7 bankruptcy or getting rid of a second mortgage, call the bankruptcy attorneys at Leiderman Shelomith, P.A. If you would like to schedule a no-cost consultation, please contact our office by completing the form on this website or calling us at (954) 932-5377.


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