Taking out a second mortgage may have seemed like a reasonable financial solution at the time, but as your debt level has risen, it may now represent an unmanageable burden. Bankruptcy may offer you an opportunity to eliminate your second mortgage through a process called lien stripping.
However, filing for bankruptcy does not automatically qualify you for lien stripping. There are requirements that you must meet to be eligible for elimination of your second mortgage.
Chapter 13
A handful of states allow filers to strip a second mortgage when filing Chapter 7 bankruptcy: Georgia, Florida and Alabama. However, in Mississippi, Tennessee and all other states, you can only eliminate a second mortgage when you file Chapter 13. You may qualify for Chapter 13 if you have a regular income, but your debt level is now beyond your control.
Home value
You can only eliminate a second mortgage through Chapter 13 bankruptcy if the current value of your home is less than what you still owe on the first mortgage. If this is the case, it means that your second mortgage represents unsecured debt, similar to medical bills or a credit card balance. Chapter 13 bankruptcy involves reorganizing your unsecured debt so that you pay it off gradually by making monthly payments over a period ranging from three to five years.
Lien stripping is only available if the value of your home has dropped since you took out the second mortgage. If you still have equity in your home, you cannot eliminate your second mortgage through bankruptcy because it does not qualify as an unsecured debt.
In addition to these requirements that pertain specifically to lien stripping, you must undergo credit counseling within 180 days before filing for bankruptcy. This is a requirement imposed by the Federal Trade Commission and, with a few exceptions, applies to all Chapter 7 and Chapter 13 bankruptcy filings.
Consumers who are having trouble keeping up with their debts may want to think about filing for bankruptcy. This could be especially true for Mississippi residents who have no savings or assets to pay off their debts with. Those who want protection from creditors may be able to file for Chapter 7 bankruptcy. In a Chapter 7 case, an individual is allowed to sell assets and use the money to pay off their debts.
If there is a remaining balance on an unsecured debt after assets have been liquidated, it may still be discharged. To qualify for a liquidation bankruptcy, a debtor must have a household income less than the state median. It may also be necessary to pass a means test, which looks at a person’s disposable income to determine if he or she qualifies for a Chapter 7 bankruptcy.
Those who don’t qualify for a liquidation bankruptcy might want to file for Chapter 13 protection. In a Chapter 13 proceeding, a debtor will make payments to creditors over a predetermined period of time. To qualify for Chapter 13 bankruptcy, an individual must have no more than $419,275 in unsecured debt and no more than $1,257,850 in secured debts. Debtors must also be current on their federal tax returns and have enough money to make plan payments each month.
Individuals who are facing the threat of repossession or a foreclosure may want to consider filing for bankruptcy. Doing so may make it possible to obtain debt relief without the need to give up property like a home or a car. When a case is filed, creditors may be barred from filing lawsuits or calling a debtor about an outstanding balance. Legal counsel may further explain the potential benefits of a Chapter 7 or 13 proceeding.
A medical emergency or a costly car repair can begin a Mississippi resident’s slide into debt. A survey from CreditCards.com showed that various emergencies, medical bills, auto repairs and daily expenses resulted in one-third of respondents leaning on their credit cards too much. On the whole, the nation has accumulated over $1 trillion in credit card debts according to WalletHub.
In the second quarter of 2019, consumers added another $35.6 billion to their card balances. Analysts at WalletHub expect consumers to incur a total of $70 billion in extra credit card debt by the end of the year.
The financial pressures evident in these figures have resulted in long-term debt for many people. According to CreditCards.com, over one-third of people carrying credit card balances have been doing so for a minimum of two years. Many of them owe more on their cards than they possess in savings.
Sometimes individuals manage to pay their credit card bills by reducing expenses and reforming their spending habits. In some cases, however, financial difficulties prove overwhelming. A person unable to increase income or reduce expenses might want legal advice about debt management. An attorney might provide information that might allow a client to renegotiate a loan payment or settle an outstanding debt for a lower amount. An attorney’s intervention might gain the client more time to pay a debt. This might prevent repossession or wage garnishment. Chapter 7 bankruptcy might also be a viable option. This involves the liquidation of the debtor’s non-exempt assets with the proceeds being used to pay off creditors. The remaining balance of most unsecured obligations would then generally be discharged.
Many people living in Mississippi are aware that bankruptcy is one option for debt relief. However, national statistics show a decline in bankruptcy cases in recent years.
While reasons for the decline are not entirely clear, many attorneys have put forth some ideas. Some have noted that the reasons why individuals file for bankruptcy in the first place have been mitigated. Unemployment numbers are down, which means people have more income they can apply toward debt. In addition, the Affordable Care Act has provided people with health insurance coverage, possibly reducing high levels of medical debt.
Other reasons for low bankruptcy rates may be less encouraging. Some debtors simply cannot afford the fees and court costs required to file for bankruptcy. Furthermore, many people carry student loan debt, which is very difficult to discharge in bankruptcy. As a result, individuals with significant debt burdens may feel as though there is no reason to bother filing for a discharge of their debts.
Still, bankruptcy remains an effective way for some people to cope with unmanageable debt. In cases where debt can’t be discharged, bankruptcy might provide some relief by granting automatic stays against collection activity. In a Chapter 13 bankruptcy, debts can be repaid as part of a three- or five-year repayment plan. This could make it easier for someone to regain their financial footing.
Individuals who are considering bankruptcy may benefit from consulting with an attorney. The lawyer could review the client’s circumstances and make suggestions regarding debt management options, including Chapter 7 and Chapter 13 bankruptcy.
Mississippi had the fourth highest per-capita rate of personal bankruptcies in the nation in 2018, and the data suggests that more than two-thirds of them were filed because of overwhelming doctor and hospital bills. Comprehensive health insurance provides protection against spiraling medical debt, but many Americans find themselves without this crucial coverage each year after going through a divorce or losing their jobs. A recent study conducted by University of Missouri and University of Denver researchers reveals that individuals are twice as likely to file a Chapter 7 or Chapter 13 bankruptcy after going without health insurance for just two years.
The researchers made this discovery after analyzing data on 12,500 bankruptcies from the Bureau of Labor Statistics. Millions of Americans currently have health insurance because of the Affordable Care Act, but the future of the landmark 2010 law is uncertain. Attorneys from 18 states filed a legal challenge to the ACA after Congress voted to eliminate the individual mandate. If the litigation is successful, up to 20 million Americans could lose their health insurance.
More than half of Americans polled by the Kaiser Family Foundation said that financial concerns had led them to cancel or put off a visit to a doctor or dentist in the last year, and many of them were enrolled in a health plan. More than a third of the insured respondents said that they had difficulty making copayments or meeting their deductibles.
The nation’s bankruptcy code was written to give people who are struggling to make ends meet the opportunity of a fresh start, but individuals with unmanageable financial situations are often reluctant to take action because of the myths surrounding debt relief. Attorneys with experience in this area may help dispel these myths and explain how Chapter 7 or Chapter 13 bankruptcy offers an escape from overwhelming debt. Attorneys ma also explain that the automatic stay issued when a bankruptcy is filed requires lenders to immediately cease their collection efforts.
