Usually reserved for other bankruptcy filings only, a court decision out of Florida has determined that homeowners who are underwater on their mortgages can strip off their second mortgages through Chapter 7. This comes as good news for the many Florida homeowners who still find themselves underwater after the real estate bubble burst in 2008.
The ruling came out of the Eleventh Circuit Court of Appeals in Florida. The ruling says that homeowners with a second mortgage can strip it off under chapter 7 bankruptcy. Previously, Chapter 13 was the only bankruptcy filing that allowed homeowners to strip a second mortgage. Under this process, the individual was then required to set up a repayment plan of three to five years.
What it Means
The major benefit of being able strip a second mortgage under Chapter 7 bankruptcy, as opposed to Chapter 13, is that homeowners are not required to set up that multi-year repayment plan like they would be under Chapter 13 code. Put simply: it allows more freedom.
However, you are still required to qualify for Chapter 7 in order to strip the second mortgage. This means you must meet the standard financial requirements under the means test, complete a debtor education course, and obtain mandatory credit counseling. If you meet the requirements and qualify, a Tampa bankruptcy lawyer can then work with you to file the proper motions to strip a second mortgage.
It is unclear whether this decision will have a ripple effect on other US or Florida jurisdictions, but the local effect of the ruling provides immediate relief for many homeowners.