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Florida homeowners should be aware of how bankruptcy laws may affect their situations when it comes to mortgages on their properties. Many homeowners may be current on their first mortgage, but may find themselves behind on a second mortgage that they may have taken out with a credit union and may be considering filing Chapter 13 bankruptcy in order to avoid foreclosure.

Credit unions are in a unique position when it comes to home loans because of their small size. Some of the employees feel personally invested in the loans they monitor.

Under Chapter 13, a homeowner cannot eliminate a junior mortgage if the home is worth more than the amount owed on the senior lien. In markets where real estate prices are increasing, as is the case in many areas in Florida, it can be difficult to show that the home is worth less than the senior mortgage, especially if the owner has made significant improvements to the property.

The homeowner should attempt to have the residence appraised to see what the home is worth and thus determine if Chapter 13 is a viable option. However, the holder of the second mortgage could also request an appraisal and could claim that its lien cannot be eliminated due to a higher appraised value. The homeowner might be able to work out a payment plan on the second mortgage so that the holder doesn’t pursue foreclosure.

Financial challenges, including the threat of foreclosure, can seem overwhelming to homeowners. A bankruptcy lawyer may be able to help clients assess their legal options under Chapter 13 and other bankruptcy laws in order to avoid foreclosure, and may be able to suggest other forms of debt relief .

Source: Fox Business, “Can Chapter 13 Help Me Get Rid of Second Mortgage?”, Justin Harelik, September 11, 2013