Any reason to settle with 2nd after a lien strip?

[pcn]

First, is it possible? Say you had a rich uncle who could settle with them for 10%, assuming that is more than they are getting in the plan. So there is incentive for them - get more than they would in the plan. Is there any advantage to doing this, and is it possible/legal? If it is a possibility, I can see it as a way to head off some issues should the plan not work out, and a person had to move to a ch7 where a lien strip is not possible. Has anyone here done this? Thanks!

[StartingOver08]

Wait...you are in a Ch 13 right now. Just trying to understand the question:

A) You have a 2nd that you are attempting to strip. In order to stip the 2nd you have to complete your Ch 13 and get a discharge.

B) You are making plan payments but would like to convert to a Ch 7 which would mean you do not get a Ch 13 discharge so the lien would not be stripped in the Ch 7.

C) In order to achieve the same result, you have outside resources to pay your 2nd in exchange for removing the lien.

I have questions:
1) How far into your plan are you already?
2) Wouldn't you have to repay the Rich Uncle the amount you borrowed for the 2nd?
3) Has your income changed enough to convert your Ch 13 to a Ch 7?

[justbroke]

First, is it possible?

Not while you are in Plan!

Say you had a rich uncle who could settle with them for 10%, assuming that is more than they are getting in the plan. So there is incentive for them - get more than they would in the plan. Is there any advantage to doing this, and is it possible/legal?

Not while you are in Plan!

If it is a possibility, I can see it as a way to head off some issues should the plan not work out, and a person had to move to a ch7 where a lien strip is not possible.

As you suggest, this is good if the Chapter 13 plan fails and the lien is re-instated. However, when it fails, that would be the time that you make an offer to the 2nd lienholder.

The problem with attempting to sway the 2nd lien holder inside the Chapter 13, is that the 2nd lien holder, having already been stripped, is an unsecured creditor. They cannot gain more than any other "unsecured creditor" (technically a creditor in the same priority class)!!! This is why it's not "legal" to do this while inside the Chapter 13. The Trustee would just take the money and distribute it amongst all the other general unsecured creditors (who filed allowed claims).

I agree with StartingOver08 and what she wrote. You still need to answer a bunch of questions. In the end, I don't see any purpose of doing this, unless and until your actually fail your Chapter 13 and it is dismissed!

Of course, this is my general opinion, but I don't see where in the Code that would allow you to do so, while in Plan.

[pcn]

Wait...you are in a Ch 13 right now. Just trying to understand the question:

A) You have a 2nd that you are attempting to strip. In order to stip the 2nd you have to complete your Ch 13 and get a discharge.

B) You are making plan payments but would like to convert to a Ch 7 which would mean you do not get a Ch 13 discharge so the lien would not be stripped in the Ch 7.

C) In order to achieve the same result, you have outside resources to pay your 2nd in exchange for removing the lien.

I have questions:
1) How far into your plan are you already?
2) Wouldn't you have to repay the Rich Uncle the amount you borrowed for the 2nd?
3) Has your income changed enough to convert your Ch 13 to a Ch 7?

Sorry, not clear enough in my original post.

I have questions:
1) How far into your plan are you already?
Not in either ch yet. Still looking at options.
2) Wouldn't you have to repay the Rich Uncle the amount you borrowed for the 2nd?
Maybe, maybe not. Gifts are non taxable up to 10k (maybe more now).
3) Has your income changed enough to convert your Ch 13 to a Ch 7?[/
Still running different scenarios, looks like we could potentially do either ch.

If I understand what you (and Justbroke) are saying, you can not pay anyone outside of the plan? So are those with student loans who pay extra outside their plan to keep the principal from exploding while in the plan doing something illegal? Could the rich uncle would pay the creditor directly, so the trustee was not involved? I was just thinking about the after filing possibility that the creditor would be more receptive to making a deal.

[HHM]

Seconds are still rarely settling, so its a huge risk.

[justbroke]

First, what HHM wrote is very succinct and to the point. While there has been very recent success (even on this board!) with second lienholders settling, it's still not guaranteed, and I can only name one successful one (from this board)! If that's any indicator...

If I understand what you (and Justbroke) are saying, you can not pay anyone outside of the plan? So are those with student loans who pay extra outside their plan to keep the principal from exploding while in the plan doing something illegal? Could the rich uncle would pay the creditor directly, so the trustee was not involved? I was just thinking about the after filing possibility that the creditor would be more receptive to making a deal.

Student loans are non-dischargeable! So, paying them outside the plan is perfectly "legal". It's when you pay an unsecured creditor more than they would receive through the Plan and/or over and above other creditors in the Plan, that you run into this issue.

If the rich uncle paid, then you'd be in trouble too. (Of course, the Trustee would have to find out, but I think they would, when the 2nd started sending back Trustee payments as "overpayments".)

You are absolutely right with the tax free gift theory, but it doesn't work in this particular case. While the current tax-free gift provision is $13,000 per year, it is just "non-taxable" income. Notice the word income used in that definition. Since it is income and doesn't fit within one of the exemptions to the definition of income in the Bankruptcy Code (11 USC 101)... it (your uncle's gift) is property of the Estate.

That instantly brings it into the control of the Trustee. So, let's say your Uncle did do just that, paid the 2nd lienholder while you were in plan. The Trustee would eventually find out, then the Trustee would file a motion to recover this preferential payment. The Trustee would then distribute it pro rata amongst all the creditor. (The Trustee would recover the preferential payment from the 2nd lienholder directly.)

Now, you still would have the 2nd lien, and would be paying your creditors at even a higher percentage. (Note: my opinion listed does not take into account if the 2nd lien balance is greater than all your other unsecured creditors, but I still don't think it matters. That basis and basics of this are the same.)

[relief13035]

I would love for the person that was successful in settling their 2nd to chime in with advice.

I am ATTEMPTING right now to settle on mine. Not there yet, just in the negotiating stages. I would love to make this happen and be able to help other forum members.

I'll update any changes in this process.

[justbroke]

I would love for the person that was successful in settling their 2nd to chime in with advice.

That was "getmeoutofhere", and you were in that thread. He said he got GMAC to 10%, but didn't have the money. However, getmeoutofhere didn't seem to have followed through with the deal on the table. It was the only time I've seen a deal on a 2nd mortgage.

https://www.bkforum.com/node/38245

[relief13035]

That's right - thanks for the reminder on who it was. Guess I have so much on mind I'm slipping.

If I get the 10% offer, I am accepting it right away. I'm going to keep being persistant for what it's worth.

[justbroke]

That's right - thanks for the reminder on who it was. Guess I have so much on mind I'm slipping.

Don't let the Inland Empire conquer you. Stay strong!

[pcn]

I would love for the person that was successful in settling their 2nd to chime in with advice.

I am ATTEMPTING right now to settle on mine. Not there yet, just in the negotiating stages. I would love to make this happen and be able to help other forum members.

I'll update any changes in this process.

You are attempting to settle with the 2nd after you have been discharged in a ch7, right? That's the other consideration we have. If we don't qualify for a 7 we have enough negative equity (right term?) to qualify for a lien strip. It seems "cleaner" and faster to go ch7, but then there's the unknown resolution of the 2nd. What's your status right now? Is your 2nd talking to you, are you having any progress, maybe going back and forth on amounts? Thanks!

[relief13035]

Yes I am already discharged. We didn't reaffirm the 1st or 2nd. We could walk away at any time if we wanted.

I think I am talking to them more than they are talking to me, but at least I have their attention. I plan on being relentless in trying.

The loan mod. on the 1st seems to be going good though.