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Chapter 13 Bankruptcy Or Loan Modification?

Rarely does a loan modification include a principal reduction.  The typical loan modification only deals with the first mortgage and will only reduce the monthly payment,  not the total amount due and owing.  For most Las Vegans it does not make sense to keep paying on an asset that is completely upside-down.

Therefore, many people turn to Chapter 13 bankruptcy to modify their loans AND reduce the principal balance.  Chapter 13 bankruptcy can eliminate your second mortgage completely while bringing any missed payments on your first mortgage current over a three or five year period.  In bankruptcy, removing the second lien on a property is called “lien stripping.”  You can lien strip only if the value of your house is LESS than what you owe on your first mortgage.

For example, if the value of your home is $175,000 and you have a first mortgage of $200,000 and a second mortgage of $150,000, in a Chapter 13 bankruptcy you completely eliminate the second mortgage and only pay on the first mortgage.  Thus, in Chapter 13 bankruptcy you were able to reduce the principal amount of your home by $150,000.

Chapter 13 bankruptcy has many other benefits and, in some cases, can save your home.  To learn more, please visit Black & LoBello’s Bankruptcy Website for more details.

Randy M. Creighton, Esq.

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