2nd Mortgage Stripping in CH 13..

[IBroke]

Hi,

Our second mortgage is totally unsecured due to the high 1st mortgage. I know that in a chapter 13, you can get rid of the 2nd in that case.

As we all now, Chapter 13 has certain "debt-limits", no my question would be:

Is this second mortgage deducted from your SECURED or UNSECURED allowance? That could make a difference..

[justbroke]

Is this second mortgage deducted from your SECURED or UNSECURED allowance? That could make a difference..

Generally speaking, the courts go by what is known at the time. The 2nd mortgage would count towards your SECURED balances.

Here's why. The section of the Bankruptcy code which controls this is 11 USC 109(e). Section 109(e) establishes the debt limits based on whether they are secured or unsecured debts. However, any of those debts must be non-contingent, liquidated and undisputed.

In a Chapter 13 lien stripping situation, the unsecured portion of the mortgage/lien to be striped is contingent! It's contingent because it is considered a contested matter and must be adjudicated by the Court. Hence, what is filed, as the secured portion, is what counts.

I learned this, because this is what I did and if you add all my lien stripping and cramdowns (of the cars) together, I'm over the $336K limit for unsecured debt. My case was confirmed and I am a pro se filers to boot. Woo Hoo!!!

BTW, caselaw suggests that for the most part, Courts look to the Schedules, what you filed, to determine eligibility under 11 USC 109(e). However, there is supporting caselaw which reads that Judges can look beyond the schedules. However, that is usually reserved when there is unliquidated and contingent assets due to lawsuits or judgments. I have never seen them look "beyond the schedules" when it comes to real property.

[IBroke]

Thanks, justbroke!

The reason why I was asking is that our second mortgage has a balance of about $150K and if this entire amount would have been deducted from the "unsecured" allowance, there wouldn't have been enough left for the other debt (credit cards etc.).

Now here's my situation:

Our current 1st mortgage send us a letter, offering a reduction of our monthly payment from $3,400 to $2,500. They also said they would reduce the current balance from $547K to $299K!!

This reduction, however, would only go into effect if we would make 3 payments of the $2,500 for three consecutive months - they called it a "trial-period"..

Soooo, I was thinking we might be able to go with the CH 13 BEFORE the trial period ends, meaning we would file with a 1st mortgage of $547K with leaves the second unsecured. If we would file later, the scenario would be different (part of 2nd mortgage wouldn't be unsecured anymore).

It is a very interesting situation because the agreement the 1st mortgage sent us indicates that they will adjust the monthly payment on the NOTE on May 25th, showing the new payment being effective as of February 24th. The new amount owed on the note, however, wouldn't be adjusted until May 25th. So let's say we'd file Chapter 13 in a month, we could indicate the high balance on the 1st mortgage - but what payment would we have to claim? The new $2,500 we will be paying from this month on or the current $3,400 since the February effective-date of the new agreement LEGALLY doesn't go into effect until May?

It's a very tricky situation but I think I have a chance of taking advantage of it...

[IBroke]

I learned this, b3ecause this is what I did and if you add all my lien stripping and cramdowns (of the cars) together, I'm over the $336K limit for unsecured debt.

Oh, BTW, how did you manage to cramdown cars in CH 13? I'm curious?!

[justbroke]

Oh, BTW, how did you manage to cramdown cars in CH 13? I'm curious?!

Cramming down cars is easy, so long as the cars were purchased more than 910-days prior to filing (or were refinanced). Note that this has somewhat to do with underlying State non-bankruptcy law, but it's generally the rule.

[justbroke]

It is a very interesting situation because the agreement the 1st mortgage sent us indicates that they will adjust the monthly payment on the NOTE on May 25th, showing the new payment being effective as of February 24th. The new amount owed on the note, however, wouldn't be adjusted until May 25th. So let's say we'd file Chapter 13 in a month, we could indicate the high balance on the 1st mortgage - but what payment would we have to claim? The new $2,500 we will be paying from this month on or the current $3,400 since the February effective-date of the new agreement LEGALLY doesn't go into effect until May?

Your lawyer would be more likely to tell you what you put.

Remember, your payment and the write-down of the balance are contingent. Contingent on you fulfilling a term of the agreement, and that's the trial period. I don't know how a lawyer, or the Court, would deal with that.

With that kind of write-down (balance reduction), that may leave the second with some value secured, as you eluded.

Careful planning with a lawyer, is the course I suggest.

[IBroke]

Your lawyer would be more likely to tell you what you put.

Remember, your payment and the write-down of the balance are contingent. Contingent on you fulfilling a term of the agreement, and that's the trial period. I don't know how a lawyer, or the Court, would deal with that.

With that kind of write-down (balance reduction), that may leave the second with some value secured, as you eluded.

Careful planning with a lawyer, is the course I suggest.

Thanks for your help! We will contact a lawyer and ask what we can do. There is also the option of filing prior to signing the agreement (they said they would need about 3 weeks to put it in writing).

Thanks again! The most important thing is that the 2nd is still considered SECURED - even if it will be stripped. This is what makes CH 13 an option in the first place..

[BigJohn]

Thanks, justbroke!

The reason why I was asking is that our second mortgage has a balance of about $150K and if this entire amount would have been deducted from the "unsecured" allowance, there wouldn't have been enough left for the other debt (credit cards etc.).

Now here's my situation:

Our current 1st mortgage send us a letter, offering a reduction of our monthly payment from $3,400 to $2,500. They also said they would reduce the current balance from $547K to $299K!!

This reduction, however, would only go into effect if we would make 3 payments of the $2,500 for three consecutive months - they called it a "trial-period"..

Soooo, I was thinking we might be able to go with the CH 13 BEFORE the trial period ends, meaning we would file with a 1st mortgage of $547K with leaves the second unsecured. If we would file later, the scenario would be different (part of 2nd mortgage wouldn't be unsecured anymore).

It is a very interesting situation because the agreement the 1st mortgage sent us indicates that they will adjust the monthly payment on the NOTE on May 25th, showing the new payment being effective as of February 24th. The new amount owed on the note, however, wouldn't be adjusted until May 25th. So let's say we'd file Chapter 13 in a month, we could indicate the high balance on the 1st mortgage - but what payment would we have to claim? The new $2,500 we will be paying from this month on or the current $3,400 since the February effective-date of the new agreement LEGALLY doesn't go into effect until May?

It's a very tricky situation but I think I have a chance of taking advantage of it...

What are they offering you? Are they extending the loan to 40 years? Reducing the interest for 3 years and then back with the old payments?

Are they reducing real principal and or interest?

[IBroke]

What are they offering you? Are they extending the loan to 40 years? Reducing the interest for 3 years and then back with the old payments?

Are they reducing real principal and or interest?

Interest stays the same (7.250%), maturity date stays the same (27 yrs. from now) and all other contractual agreements stay the same.

They would reduce the monthly payment by $900 and reduce the total amount owed under the Note. The lower payment will be permanent.

We weren't able to make a payment for 2 years(!!) now so the current balance went up to $547K (from $465K). They are willing to cut that to $300K.