As part of the bankruptcy services I provide in Indiana, I answer questions posed by blog readers. Yesterday, I answered a question about trailers. I explained that trailers and 
mobile homes are treated like houses, not like cars, in bankruptcy. I told the reader that the Indiana homestead exemption of $15,000 per owner could apply to his trailer.
Today a reader from Columbus, Indiana is asking me, as a Columbus bankruptcy lawyer, to explain how second mortgages are handled in bankruptcy in Indiana.
For Chapter 7 bankruptcy, the value of the home would first be calculated (this is not necessarily the same as the cost or the market value). 10% would then be subtracted for hypothetical selling costs. The result, or "equity", would be measured against the $15,000 exemption. In almost all Chapter 7 bankruptcy cases, the exemption more than covers the equity, and the homeowner is able to stay in the home.
When it comes to Chapter 13 bankruptcy, it's often (but not always) possible to totally get rid of a second mortgage. That's because the law treats secured and unsecured debt differently. (Again, I need to issue a warning NOT to take this blog as advice in your own case - each situation needs to be examined to see how the rules would apply.)
With the way home prices have fallen, the second mortgage on many homes is actually unsecured. That's the result of so many homes being "upside down", meaning the market value of the home is less than the first mortgage and second mortgage combined! In such a case, the second mortgage could be treated the same as a credit card debt in the bankruptcy process, and that debt could be discharged, or forgiven, by the court.
Being upside down could actually amount to coming out ahead in a Chapter 13 bankruptcy!
mobile homes are treated like houses, not like cars, in bankruptcy. I told the reader that the Indiana homestead exemption of $15,000 per owner could apply to his trailer.Today a reader from Columbus, Indiana is asking me, as a Columbus bankruptcy lawyer, to explain how second mortgages are handled in bankruptcy in Indiana.
For Chapter 7 bankruptcy, the value of the home would first be calculated (this is not necessarily the same as the cost or the market value). 10% would then be subtracted for hypothetical selling costs. The result, or "equity", would be measured against the $15,000 exemption. In almost all Chapter 7 bankruptcy cases, the exemption more than covers the equity, and the homeowner is able to stay in the home.
When it comes to Chapter 13 bankruptcy, it's often (but not always) possible to totally get rid of a second mortgage. That's because the law treats secured and unsecured debt differently. (Again, I need to issue a warning NOT to take this blog as advice in your own case - each situation needs to be examined to see how the rules would apply.)
With the way home prices have fallen, the second mortgage on many homes is actually unsecured. That's the result of so many homes being "upside down", meaning the market value of the home is less than the first mortgage and second mortgage combined! In such a case, the second mortgage could be treated the same as a credit card debt in the bankruptcy process, and that debt could be discharged, or forgiven, by the court.
Being upside down could actually amount to coming out ahead in a Chapter 13 bankruptcy!
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