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IF I HAVE A SECOND MORTGAGE ON MY HOUSE, CAN I WIPE IT
OUT IN BANKRUPTCY? 

A second mortgage has the same legal effect as a first mortgage. Whether a first or second mortgage (sometimes called a Deed of Trust), the legal set-up is the same. The bank or lender has loaned you money. The lender wants to be in the position of a secured creditor as discussed above. They want you to use your ownership in your house as collateral. For a car, putting up for collateral is done by a lien on the car title. For a house, it is done by a Mortgage or Deed of Trust that “secures” the Promissory Note. The Note is the obligation to pay back the loan that you sign.  

Unfortunately, lenders have been very slick and have gotten people to put second mortgages on their house to secure their loans, like bill payer or consolidation loans. For example, a person has a $60,000 first mortgage on a house that’s worth $80,000. They have a need for money and they go to a lender (the bank, credit union, loan company). The lender requires them to give the lender a second mortgage (or second Deed of trust) on the house for $20,000. They now have a total of $80,000 of loans against the house that’s only worth $80,000.