When the foreclosure crisis first began we heard a lot about the devastating effects of adjustable rate mortgages (ARMs) which were financially crippling millions of homeowners whose interest rates had reset. Unfortunately for many homeowners, ARMs are still pushing many into foreclosure causing a silent crisis on the thousands of communities across the nation. At the height of the housing boom and lending mania homeowners were given the option of choosing to structure their mortgages in a way that allowed them to make very low monthly payments for the first 3 to 5 years of their mortgage repayment period, but held the risk that the mortgage payment would balloon to sometimes double or even triple the original monthly payment. Many of those homeowners ended up in foreclosure because they were not prepared for the drastic increase in their mortgage payments. The good news for those debtors facing foreclosure due to an ARM reset is that if the value of their home fell below the balance of their second or third mortgage they may be able to discharge those debts in Chapter 13 bankruptcy while keeping their home and enjoying a lower payment. How is that possible? Well under the rules of bankruptcy, a debt is only considered a secured debt as long as the property it is secured by has enough value in it. For example, if you purchased a $250,000 home with three mortgages, a $150,000 first mortgage, a $50,000 second mortgage and a $50,000 third mortgage and your property’s value fell to $150,000 by the time you filed for bankruptcy, the second and third mortgage would not be considered secured debt. Technically the second and third mortgages mentioned in the example could be discharged in bankruptcy. To find out more about how you can save your underwater home in bankruptcy speak with a Dallas-Fort Worth bankruptcy attorney.
