If you are somebody who’s house is underwater and you have a second mortgage on your home as well, you may want to consult with a bankruptcy attorney in your area. Property values in the Seattle metro area have been going up recently so this scenario may be less likely to happen as of late, but there are still some houses at there that are severely under water and may benefit.
In general, a debtor is eligible to strip (eliminate) a second mortgage on a primary residence through a chapter 13 bankruptcy if the primary residence is worth less than the first mortgage, making the second mortgage completely unsecured. After filing the chapter 13 bankruptcy case an adversary case against your bank may be filed requesting to strip the mortgage must be filed. If your lender does not object or stipulates (agrees) to a judgment in your favor which is usually the case if your home is worth less than your first mortgage, then your second mortgage will be discharged with your other unsecured debts at the completion of your chapter 13 bankruptcy plan which may be in 3 to 5 years from when your case was filed. The length of your bankruptcy repayment plan will most likely depend on whether you were eligible to file for chapter 7 bankruptcy in the first place or not. If you were eligible for chapter 7 based on your income and family size you could go on a 3 year chapter 13 bankruptcy repayment plan. If your case is dismissed at any time during your repayment plan then your second mortgage will remain intact as you will not have received a discharge of your debts. For more details check out This How to Strip a Second Mortgage in Chapter 13 Bankruptcy Article.