Apparently, 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.