When an individual falls behind on their mortgage, they have the benefit of filing for a Chapter 13 bankruptcy in order to prevent a foreclosure. A unique feature of a Chapter 13 bankruptcies is that junior mortgages, a second or third mortgage, can be eliminated if the house is worth less than the balance of the first mortgage. How this works, when an individual gets behind on their mortgage payments. The first mortgage could start a foreclosure procedure. Instead of going through with the foreclosure, that individual can file for a Chapter 13 bankruptcy, thereby stopping any foreclosure proceeding.
Additionally, if the individual’s home is worth less than the first mortgage, any junior mortgages would not receive anything from that potential foreclosure. Under a bankruptcy, those junior mortgages would be considered “wholly unsecured” and as such they could be stripped. Those junior mortgages would be treated the same as other unsecured debts and at the end of the bankruptcy, would be discharged the same as the other unsecured debts. At the end of the bankruptcy, the lien for the junior mortgages would be removed from the individual’s property and the individual would no longer need to worry about having multiple mortgages on their properties.