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Irvine Bankruptcy Lawyer / Second Mortgage

One of the benefits of owning a home is that you are purchasing a solid financial asset that is likely to significantly grow in value over time. It might take 15 or 30 years to pay off the mortgage and own the house outright, but even before that time is up, you gain valuable equity in the home with each monthly payment.

With such a valuable asset in your portfolio, you might have decided to take out a second mortgage on your home to help you pay off other debt such as high-interest credit cards, or you may want to put the money back into the home with significant repairs and renovations. You might even take out a second mortgage to pay for your children’s college or other significant expenses.

But what happens if your financial fortunes take a turn and you cannot keep up with the second mortgage? A mortgage is a lien on your house, and a second mortgage holder could foreclose, causing you to lose the home you put your hopes and dreams into. Before that happens, get advice and help from a seasoned California attorney who can explore and explain your options and get you real and lasting relief from an overly burdensome second mortgage. In Southern California, call The Law Office of Charles A. May to discuss your situation with a knowledgeable and dedicated lawyer.

What Is a Second Mortgage?

A second mortgage is a loan that allows you to borrow against the value of your home, specifically, the equity you have built up. In essence, your home acts as collateral for this loan. Unlike a primary mortgage that you use to buy your house, a second mortgage is often used for things like home improvements, debt consolidation, or significant life events like a wedding or education.

Second mortgages come in two main forms:

  • Home Equity Loans These function similarly to a traditional loan. You borrow a lump sum against your home’s equity, and you repay it over a specified period at a fixed interest rate.
  • Home Equity Lines of Credit (HELOC) Think of a HELOC as a credit card. You have a revolving line of credit that you can draw from, up to a certain limit. The interest rate on a HELOC is typically variable.

While second mortgages can offer a source of funds and potential tax benefits, they come with some risks. If you default on your second mortgage, you could face foreclosure on your home. This is why it is crucial to consult with a knowledgeable Irvine consumer bankruptcy attorney like Charlie May at The Law Office of Charles A. May to assess your options and risks thoroughly.

Dealing With Second Mortgages in Bankruptcy

If you are already in a difficult financial situation, bankruptcy might be the solution to give you a fresh start and put you back in control of your finances. Bankruptcy deals effectively with many different kinds of debt, including second mortgages.

For most consumers, Chapter 7 is the preferred form of bankruptcy to file, as it offers a straight discharge of unsecured debt such as credit cards and medical bills, without having to repay any portion of the debt. However, Chapter 7 does not deal directly with secured debts such as home mortgage loans, and your home itself could be at risk if you file for Chapter 7. The Chapter 7 bankruptcy trustee has the ability to take your non-exempt property and sell it to pay your creditors before discharging any debt. Although both sets of California bankruptcy exemptions include significant exemptions for your residence, it might not be enough to protect your home from liquidation, depending on the value of the property and the equity you have obtained in it.

Chapter 13 bankruptcy, on the other hand, can be very effective in dealing with a second mortgage. For example, if you owe more on your first mortgage than your home is currently worth on the market (known as being “underwater” or “upside down” on your mortgage), then if the home were to be foreclosed and sold, the second mortgage holder would be left out in the cold, because all of the sale proceeds would go to the holder of the first mortgage. This fact allows the bankruptcy court to treat your second mortgage as unsecured debt, in which case it could become partially or entirely discharged in the bankruptcy process. This process is commonly referred to as “lien stripping,” and it is a particularly powerful tool for homeowners unable to service their mortgages and facing foreclosure.

Contact The Law Office of Charles A. May for Help With Second Mortgages and Bankruptcy

Second mortgages are complex, and their interaction with bankruptcy laws can be even more so. It is essential to have a legal partner who understands both. The Law Office of Charles A. May has years of experience helping clients solve complicated financial issues. We take the time to understand your circumstances and offer solutions tailored to your needs. Your financial peace of mind is our utmost priority. For help with second mortgages and bankruptcy in Orange County, Los Angeles or throughout Southern California, reach out to The Law Office of Charles A. May for a free consultation.

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