If your Oregon home has both a first and second mortgage on it and you fear the possibility of foreclosure due to the financial difficulties you have recently encountered, you may want to consider filing Chapter 13 bankruptcy. Why? Because Chapter 13 can prevent your first mortgage lender from foreclosing on your home, and it can also strip any lien your second mortgage holder may seek to place on it.

Chapter 13 will not discharge your first mortgage, but it can discharge your second while giving you time to get caught up on your first mortgage payments. Basically, Chapter 13 represents a reorganization procedure, not a discharge procedure like Chapter 7. Nevertheless, HomeGuides explains that since your second mortgage lender holds no actual security for the mortgage loan it granted you, the Bankruptcy Court can discharge this unsecured debt and strip away any lien that your second mortgage lender has put on your home.

Secured versus unsecured creditors

Once you file Chapter 13 bankruptcy, the Court determines whether your creditors are secured or unsecured, and places them into the appropriate category. You get to renegotiate your current debt balances with your respective secured creditors, as well as the interest rates you currently pay. Usually, this gives you not only substantial debt reductions but also substantial monthly payment reductions.

After you renegotiate all your secured debts, you devise a plan to pay them down over a lengthy period of time, usually three or five years. The Court then approves your plan and you subsequently adhere to it, faithfully making your agreed-upon payments. When your bankruptcy period comes to an end, the Court discharges any and all unsecured debts your plan did not mention. Consequently, your second mortgage goes away, and any lien associated with it gets stripped.

This is general educational information and not intended to provide legal advice.