Professor Hayes blogs about an anticipated ruling from Bankruptcy Judge Maureen Tighe on the issue of what happens to the unsecured portion of a home loan where the second mortgage is stripped away.
The issue is this: when a home is underwater and the second mortgage is “wholly unsecured,” we can remove your second mortgage. You don’t pay it anymore. You recover equity. This is a good thing.
Problem is, there are limits to how much debt you can have in certain kinds of bankruptcy. And if the home loan now counts as credit card debt, this can put you over a limit. This was the open issue: does it? Or is it really as of the date of filing?
Judge Tighe held that since it’s likely to be stripped, it counts in the unsecured portion. So, depending on how underwater you are, you could run into debt limits and eligibility problems.
See a Los Angeles bankruptcy lawyer before you make your first move.
