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Many homeowners in Florida have experienced an unprecedented loss of value in their homes. In the years leading up to what the media likes to call the "Mortgage Meltdown" many homeowners were enticed to tap in to the seemingly abundant and always increasing equity in their home to consolidate credit card debt, do home improvements, or simply take some cash out of their home to pay for a vacation. 

The temptation to take out a Home Equity Line of Credit (HELOC) or to refinance was fueled by the never ending advertisements on all type of media promising all time low interest rates, small monthly payments, and the ability to "write off" the payments come tax time.  The way these products were packaged and sold to the general public, you would have to be crazy not to take advantage of this, right? 

As we all know the house of cards came tumbling down the second home values stopped increasing.  That's right, these great deals being offered all over the place were based on the tenuous assumption that home values would continue to increase.  When home values dropped, many lenders "froze" the line of credit because the home's value was no longer high enough to cover the outstanding debt. 

Every day I meet with homeowners who not only have no equity in their home, but who owe thousands of dollars more than their home is worth because the value of the home has depreciated far below what is owed on both the first mortgage and the HELOC.  Fortunately, a homeowner in Florida may take advantage of the Chapter 13 Bankruptcy law to "strip" off that HELOC.  Here's how it works:

If the value of your home is less than what you owe on your first mortgage as of the day of filing your Bankruptcy, then you are able, through the Chapter 13 Bankruptcy, to "strip" off the HELOC or second mortgage because it is wholly unsecured.  Your attorney would file a Motion with the Court to accomplish this.  Not bad huh?

 There are other advantages to a consumer in a Chapter 13 such as altering the payment on a car loan by lowering the interest rate, eliminating other unsecured debt, and stopping a foreclosure. 

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This recent article from the Wall Street Journal describes the attempts currently being made by Washington lawmakers to allow a debtor in a Chapter 13 Bankruptcy actually reduce the principal amount of his or her mortgage down to the value of the home as of the date the Bankruptcy Petition is filed.

If this legislation passes into law, it would obviously be of great benefit to Florida homeowners who have seen their home values plummet in the last 12-18 months.