A Chapter 13 bankruptcy may have the effect of discharging a second mortgage. Liens may be stripped off from the asset of the debtor if there is insufficient equity in the asset after the senior liens, such as the first mortgage, have been deducted.

Please note that you would have to qualify for this type of bankruptcy and the removal of the 2nd mortgage can only be applied within the context of debt reorganization. Chapter 13 is designed for people with regular income to pay back a portion of their debts over time.

This is supported by the Bankruptcy Code, specifically Section 506 in which it is declared that a lien can only be considered to be secured based on the value of the collateral. Therefore, for the amount that can no longer be covered by the equity of the home, the second mortgage is considered to be unsecured.

Section 11 of USC 1322 may possibly allow the homeowner, under certain situations, to waive the 2nd mortgage if he has filed Chapter 13 bankruptcy. The condition is that the price of your home has declined to a level that is lower than the value for the first mortgage. 

However, it should be noted that this could only be done for property that is the borrower’s personal residence. Therefore, this may not be applicable for properties that are being employed for business purposes. Also, lien stripping may only be permitted when the homeowner has provided other assets as collateral in addition to the home. 

Once your complete the payments under your plan, your lien strip will come into affect. Usually at this time is when your debts will also be discharged.

As with any legal situation it is always best to consult with 2-3 attorneys that are experienced in this area of law.

Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.