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When a debtor files bankruptcy, it is usually understood that first mortgages will either be reaffirmed and paid off or the house will be returned to the bank for sale. However, what happens when the debtor has a second or subsequent mortgage on a home? Can those creditors exercise foreclosurerights in Florida despite the bankruptcy filing?

The answer to this question is somewhat complicated because many debtors do not understand the difference between a discharge and removal of a lien from real property.

While a second mortgage can be included in a bankruptcy filing, simple discharging the debt does not necessarily mean that the debtor is completely free of the consequences of the mortgage. If the debtor attempts to sell the property at some future point, he or she may be in for an unpleasant surprise.

A discharge prevents the mortgage holder from taking legal action against a debtor unless the debtor reaffirms the loan. However, the bankruptcy does not remove liens from the property. In order to have the lien removed, the debtor must pay off the debt. Many mortgage companies are willing to accept reduced amounts to pay off a debt, however, and a bankruptcy may place a debtor in a stronger bargaining position in this regard.

In order to discuss ways to both discharge debts and settle outstanding liens, many debtors turn for help to bankruptcy attorneys. An attorney may be able to help a debtor understand the consequences of a bankruptcy filing or foreclosure and assist in determining the best financial course of action to take.

Source: Fox Business, “After bankruptcy, do I owe on 2nd mortgage,” Justin Harelik, March 20, 2013