J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization

In my 27 years of practice, I've rarely had the opportunity to "strip off" a mortgage. Then this last week I had two clients come in, that we may be able to do that. What the heck is a "strip off"? Well, let's say that you have two mortgages on your house. When you bought the house, you used "80-20" financing that has been so prevalent in recent years. Let's also say that the first mortgage is $80,000, and the second is $20,000. When you bought the house, it was $100,000 purchase price, so you financed 100% of the purchase price.

After buying the house, the value of your house fell. And fell a lot, to where it was only worth $75,000. If you file Chapter 13 bankruptcy, it is possible to "strip off" the second mortgage, but having the Bankruptcy Judge declare that there is "absolutely no" equity to support it. This turns the second mortgage into an "unsecured debt" which is usually paid very little and discharged or cancelled, when you complete your Chapter 13 plan.

So now, instead of owing $100,000 on a $75,000 house, and being tempted to walk away (hurting home prices even more), you owe only $80,000 on it, and will more likely stay. Your other creditors would also likely receive a larger distribution during your Chapter 13 case because of the strip off; that is the real reason it is permitted. If you live in the Houston metropolitan area or surrounding counties, are having financial troubles, and think you may qualify for a strip off, make an appointment to see me by calling 713-772-8037.

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