Although the debtor may not reduce a homestead mortgage to the fair market value of the residence, a wholly unsecured homestead mortgage is not protected from modification and can be stripped off.
Also, if the debt is completely unsecured (this typically happens with second mortgages when the first mortgage itself is “upside down”), a Chapter 13 debtor can eliminate or “strip off” the entire secured claim (second mortgage), leaving the creditor with only an unsecured claim. A wholly unsecured lien claim is void upon the Chapter 13 discharge, i.e., the second mortgage lien against the house is removed. If the debtor does not receive the discharge, most commonly for failure to complete the Chapter 13 plan, the second mortgage debt will be re-instated.
Valuation of property is necessary to determine whether the full amount of the secured debt is secured by the collateral. In Chapter 13, the value of the collateral is generally determined as of the effective date of the Chapter 13 plan. Generally, the value of the real estate is established through an appraisal prepared by a Florida Certified Appraiser. However, a bankruptcy court is not bound by valuations submitted by appraisers and may form its own opinion as to the value of property based on the proposed comparables. NADA average trade-in value is used to determine the value of a car in Middle District.