If you are weighed down by multiple mortgages or other debts that you cannot pay off, you should consult a knowledgeable Hawthorne bankruptcy attorney for help.

A major concern for a person considering bankruptcy is whether or not they will get to keep their home. It can be frightening to face the prospect of losing your home in the face of overwhelming debt. Under Chapter 7 bankruptcy, your assets and property can be sold to pay your creditors to the extent possible. However, you can “exempt” part or all of certain pieces of property.

There are two systems of exemption in California. Most people with a house will choose System 1 because it has a homestead exemption. Under System 1, you can exempt the equity in your residence up to $75,000 if you are single and not disabled or $100,00 if you have a family and at least one family member doesn’t have an interest in the property. There are higher exemptions for those who are 65 or older and for those who are 55 or older with low annual incomes. As you can see, these exemptions may not be high enough to protect your principal residence if it is worth Hawthorne’s 2009 median home value of $405,200.

If you own your house outright, your house could be sold in Chapter 7 bankruptcy to pay off other creditors. Therefore, you may need to elect Chapter 13 , rather than Chapter 7 bankruptcy. Under Chapter 13 bankruptcy, you must develop a plan to repay your debts in substantial part and follow the plan over 3-5 years before your debts are discharged.

Dealing With Multiple Mortgages

Chapter 13 has a powerful tool to help homeowners deal with multiple mortgages so long as specific conditions are met: lien stripping. This tool allows you to remove junior mortgages so long as all the equity in the property is secured by a first mortgage. If the value of the house is high enough that it is fully secured only by the first and second mortgages, you can only strip the third mortgage.

Earlier liens have priority over later liens. This concept can be easier to understand with a hypothetical example. Suppose you bought a house for $500,000, but its value fell over time. Now you own a house that a real estate appraiser values at $400,000, but you have a $350,000 first mortgage, as well as a second mortgage of $100,000 and a third mortgage of $75,000. In this situation, the house is secured by the first and second mortgages (which together total 450,000 or $50,000 more than the value of the house), but a judge can strip the third mortgage.

In addition to exemptions and lien stripping, there are a variety of other tools available to you in Chapter 7 and Chapter 13 bankruptcy that can help you protect your property while getting rid of debt. Contact the experienced Hawthorne bankruptcy lawyer Devin Sawdayi at 310-475-9399 or via our online form for help with this process.