While it may seem like a distant memory here in the Valley, many people were devastated financially when the value of their home plummeted in the housing market crash. When the market began to slowly recover, many of us breathed a sigh of relief as our home value gradually crept up to what we mortgaged it for.
For many Phoenix-area residents, however, that gradual creep has not been sufficient. Many people were forced to take out second mortgages on their homes to cover other financial deficits, and as all hope for home equity vanished, some people took out a third mortgage to cover emergency medical expenses or other unforeseen tragedies.
Junior Lien Mortgages: What They Are, and What You Can Do About Them
As Phoenix’s real estate market has recovered (and even begun to thrive), your home’s appraised may be nearing the amount of your first mortgage—but you still have that pesky second mortgage to worry about. The world of bankruptcy categorizes these liens against your home into age groups—if your home is appraised under the value of your first mortgage, your senior lien is your first mortgage, and your second mortgage is considered a junior lien.
When you file for Chapter 13 bankruptcy in Arizona and your home is valued below your first mortgage, you must still make payments on your first mortgage according to your payment plan. Your junior lien, however, can be stripped and converted to an unsecured debt. Just like your credit card debt in Chapter 13 bankruptcy, you will make very small payments towards the stripped lien over the course of your three- to five-year repayment plan. Upon successful completion of your Chapter 13 bankruptcy, your unsecured debt is discharged.
Who Does Lien Stripping Benefit?
Lien stripping can benefit any person that is a good fit for a Chapter 13 bankruptcy. Most people are not quick to the bankruptcy trigger, and if the credit score impact and commitment to a repayment plan does not intimidate you, filing for a Chapter 13 bankruptcy could be the right choice. While bankruptcy has some financial drawbacks, for the people who truly need its protection, bankruptcy can also be a financial lifesaver.
To discuss your situation with an experienced Arizona bankruptcy lawyer today, call Curry, Pearson & Wooten at 602-258-1000. We can guide you through the Chapter 13 filing and repayment process, and find out if you may be able to strip your junior liens and get your debt repayment into a manageable schedule.