Second Mortgage or Bankruptcy

Taking a secured second mortgage on your house to pay off unsecured credit card debt is a bad idea in most cases. In the event you need to file bankruptcy, credit card debt can be eliminated. Even in a Chapter 13 plan where you are paying back all of your debt, the interest rate paid on credit card debt is zero percent (0%).

In contrast, the most common way to get rid of your second mortgage in a Chapter 13 or a Chapter 7 is to give up or surrender your home to the Mortgage Company. In most situations, to keep the house, all the payments must be made on the second mortgage. It just does not make good sense for you to jeopardize your home when you can keep your home and get a fresh start on your finances.

Only in very rare circumstances would you want to exchange a type of debt that can be wiped out or paid back at zero percent interest for a new type of debt that must be paid back with interest and could result in the loss of your house if you ever get into a position where you can’t make the payment?