Case Study #1: Bankruptcy and Stripping Second Mortgages under Section 506 of the Bankruptcy Code.
Jun 15, 2011OUTCOME: Discharge on credit card debt, second mortgage erase (stripped)
Carrie came into our office overwhelmed and confused. Her income had decreased significantly due to a drop in hours at work. Moreover, she had recently gone through a divorce, leaving her with a huge a ... mount of credit card debt — over 20,000 dollars. To make matters even worse, her house was now worth less than she owed on the property and she was solely responsible, due to the breakup with her husband, for making the house payments on the first and second mortgages. After consulting with Carrie, it became clear that she could easily file a Bankruptcy and get a discharge on the credit card debt. Most beneficial to her, however, was the section of the Bankruptcy Code that allows a second mortgage to be erased or “stripped†if the property is worth less than is owed on the first mortgage. This situation is very common in our slumping economy. We discussed this matter, and decided to file her case. In the end, the money she saved on stripping her second mortgage—over 500 dollars a month—paid for the bankruptcy many times over. More than this, getting out from underneath the exorbitant credit card bills allowed her to gain a fresh start and rebuild a solid financial future.
