Eliminate Your 2nd or 3rd Mortgage

If your house is worth less than you owe on a first mortgage, and if you qualify for a Chapter 13 bankruptcy case, then you can completely cancel a second mortgage in a bankruptcy case. Why? Because the bankruptcy laws recognize the reality of the financial situation. If you were to surrender the home in a foreclosure, it would not sell for more than it is worth. In other words, it would sell for less than is owed on the first mortgage and the second mortgage would be wiped out in the foreclosure sale. The holder of the second mortgage company would receive nothing. And, since you had filed a bankruptcy case, that second mortgage comany would not be permitted to pursue you personally for the money. So, for example, consider a homeowner with a house that is worth $80,000. And assume that $85,000 is owed on the first mortgage (the older mortgage). If there is a second mortgage, then that mortgage can be canceled in a Chapter 13 bankruptcy case. The amount that is owed on the second mortgage doesn't matter. All that matters is that the value of the house ($80,000) is less than the amount that is owed on the second mortgage ($85,000).

This works the same way for third mortgages. If the sum of the first two mortgages is more than the value of the house, then the third mortgage can be canceled.