You Can Modify Or Lien Strip Your Wholly Unsecured Second Mortgage In Chapter 13 Under The Current Law
There is a powerful tool in Chater 13 that is not widely reported. A second mortgage that is completely unsecured can be stripped in Chapter 13.
Let me give you an example: if your home is worth $500,000 and your fiirst mortgage payoff balance is $525,000, you have no equity. If you have a second mortgage loan balance of $50,000, this second loan is a wholly unsecured mortgage. You can commence proceedings within a Chapter 13 case to strip or remove the lien. If, however, the home is worth $530,000 in this scenario, you cannot strip off the second lien because it is merely undersecured, not wholly unsecured. In other words, if the second lien is partially secured you cannot remove it. The current law (Bankruptcy Code 1322) also prohibits modification or stipping of first mortgages on residential property.
This may help homeowners with 80/20 loans or HELOCs where the 2d lien is completely underwater. If such a lien is stripped, it can be treated as an unsecured debt in the plan and paid a fraction over 5 years, just like credit cards. The actual percentage paid will depend on several factors, including the value of unencumbered assets and disposable income. The best person to handle it again would be your bankruptcy attorney. Always, consult a licensed Nevada attorney in this regard.