Bankruptcy

Can Chapter 13 Debtor Add A Second Mortgage Strip To An Already Confirmed Chapter 13 Plan?

By Jonathan Alper

A Chapter 13 debtor can strip a second mortgage from his primary residency if the value of his home is worth less than the first mortgage so that there is no equity securing the second. I received a call from one of my Chapter 13 clients who had filed Chapter 13 bankruptcy in 2007. The debtor had a first and second mortgage on his residence. At the time he filed the house was worth more than the first mortgage so the Chapter 13 plan did not attempt to strip the second mortgage. The debtor?s plan was confirmed at the end of 2007. The debtor is current on his payments. He reports that since the plan confirmation his residence has continued decreasing in value, and that currently the house is worth significantly less than the first mortgage. He wants to know if he can modify his confirmed Chapter 13 plan to strip the second mortgage.

The general rule is that a debtor?s Chapter 13 plan can and should be modified to reflect significant increases or decreases in disposable monthly due to changes in income or expenses. I have never been asked before to insert a mortgage strip into a confirmed Chapter 13 plan. My paralegal looked into the issue by asking some Chapter 13 experts. We found that the answer is that there is no answer, at least in our bankruptcy courts. We could find no one who has seen a post-modification mortgage strip.

My client decided not to pursue the issue because of the time, effort, and expense of moving forward with a legal action where the outcome was so uncertain. Nevertheless, it seems that there are many Chapter 13 debtors with confirmed plans in a similar situation. Someone will decide they have enough money at stake to try the post-confirmation mortgage stip.

Full post as published by Florida Bankruptcy Law on September 30, 2010 (boomark / email).