housing prices are starting to creep back up again after about five years
of significant downward pressure. And when I say significant, a lot of houses in the central valley of California
are worth less than 50% of the amount they were worth at the peak of the
real estate bubble.
A lot of people paid too much for houses during that time and often took
out junior mortgages to pay the last 20% of the purchase price. When the
home values took this tremendous plunge, there was often no equity to
support those second mortgages. In Chapter 13 bankruptcy, these borrowers
were able to treat the junior mortgage as unsecured debts, which would
be stripped off the house after making 5 years of payments.
But if home values start increasing, the days when borrowers could get
rid of second mortgages may be coming to an end. Borrowers should seriously
consider whether now is the right time to look at Chapter 13 bankruptcy.