Under Chapter 13 in both Oregon and Washington, you can reclassify second and third mortgages that aren’t secured by your home’s value into unsecured debts. The reclassification means you only have to pay a portion of them. In most cases, you end up paying pennies on the dollar before getting rid of them entirely.

Like many homeowners, you may have more than one mortgage on your home. 80-20 financing arrangements give people money to contribute to a down payment or homeowners open up a line of credit with their home equity. Either way, many people end up with one primary mortgage and other, smaller mortgages.

Additional mortgages can lead to big debts that people struggle to pay off every month. But as long as the home’s value continues to appreciate, the fight to keep up with payments might be worth it. After all, the expenditure is still an investment. But when a house decreases in value, the benefit of investment vanishes.

Missing payments on any of your mortgages results in penalties and added interest. The burden can become insurmountable quickly. The situation becomes even worse when a mortgage lender tries to foreclose on your home. Luckily, you have options.

How does Chapter 13 help?

Minimizing the debt burden of your second or third mortgages by stripping them off your home or rental property would probably make it a thousand times easier for you to pay down the primary mortgage. Filing Chapter 13 bankruptcy can provide you with the opportunity you need to prevent foreclosure so you can make your primary mortgage payment while minimizing the impact of your other mortgages.

Since your home’s value is no longer securing the other mortgage debt, Chapter 13 allows you to reclassify the debt as unsecured. Under Chapter 13, unsecured debts are repaid based on the amount of disposable income you have, not the total amount of debt at large. This means you can not only get reduce the second mortgage to an unsecured debt, but pay back next to nothing on it through your Chapter 13.  If you would like to learn more about how Chapter 13 can save you from your mortgages, give us a call today. We’ll be glad to help.

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