Mortgage Modification and Bankruptcy

Historically it has not been possible for a debtor(s) to remove a second or third mortgage in a chapter 7 bankruptcy even if the home is completely underwater on the first mortgage alone. In April of 2012 that changed in the 11th Circuit, which encompasses the state of Florida.

If, as an example, your first mortgage is $250,000, and your home is now worth $175,000, you will be able to strip off a second and even a third mortgage so that you are only responsible for the first. If your personal and real property is all covered by exemptions under Florida law, your second and third mortgages become general unsecured debts and are discharged by the court.

You may be aware that the state of Florida attempted to set up a system of modifications for mortgages and that the system has been a huge failure. Statistically only about 3% of the attempted modifications in the state program have been sucessful. In the modification program offered by the U. S. Bankruptcy Court in the Middle District of Florida, Orlando Division, more than 70% of the attempted modification of mortages have been able to sucessfully modify. Some mortgages have received lower interest rates, some have had forgiveness of arrearages, and some have resulted in very substantial principal reductions. If you are considering walking away from your home because you do not think anything can be done to save it since it is underwater, perhaps you should call for a free initial consultation.