File Chapter 13 for 2nd Mortgage Strip Only?

[hjk4300]

We've been struggling with decisions that have to be made for several months now. Here is our situation.

Our income reduced by 40% in May 2010. Things getting progressively worse. Stopped paying 1st and 2nd mortgage last month. We are ready to walk away from the house. But want the house to be our only failure. We have made payment arrangements with all unsecured debt holders and plan to pay back 100%.

The house appraised at $350,000 3 months ago. We owe $348,000 principal on 1st, now getting behind. House should appraise less today. We live in California. 2nd mortgage stands at $132k.

Would it be possible to file a Chapter 13, with the sole intent of stripping the 2nd? The 2nd is an actual 2nd mortgage, not a heloc. The first was refinanced in 2006, the same time we took out the 2nd.

If we can't strip the 2nd, and still walk away, is there recourse for the bank, on either 1st or 2nd? I was verbally told that a "no-recourse" law is in effect in until Jan 1, 2011, under some conditions. Can anyone confirm? Not that I really understand the impact one way or another. But if something is changing on Jan 1, 2011, seems like I should be filing, instead of dragging things out. It's starting to get scary. Thanks sharing your experiences - HK.

[Pandora]

If you're not planning on keeping the house -why would you try to get a strip? If you plan on keeping the house, then in order to strip the 2nd you must be 100% certain that the value is less than what is owed to the 1st. You're pretty close if your appraisal of the value is correct... $2K I think your 2nd will fight the value.

You cannot "pick and choose" which debts get included in your BK filing - you must include ALL debts, so the unsecured debt that you're paying right now must be included whether you file CH. 7 or 13. Also be aware that any payments you're making to unsecured creditors can be considered preferential payment and be revoked by the trustee if over $600, respectively, if you file BK.

Are you over or under median? If over, are you in the red each month after all bills / expenses are paid? If so, you may qualify for a Ch. 7.

[hjk4300]

It's all about recourse, isn't it? I think that if you walk away from a first, recourse is limited or nonexistent. But I've heard you can't walk away from a second. You owe it, no matter what. If anyone can confirm or deny, please do. Because we'll walk away tomorrow if the option is livable.

But if I strip the second, it doesn't exist. No recourse possible. But this is all so confusing. On reputable looking websites, it is stated that no recourse is possible now anyway - due to a law passed in 2009 - that expires on 1/1/2011. 2 months. Then recourse is back in play.

I appreciate anyone's efforts who read or might contribute. Assuming I make any kind of sense. I probably don't. For your questions:

We are over the median. The lawyer's Chapter 13 software indicated we would have $400 per month to repay unsecured debt, and the Plan filing would be successful. Actually, he says he won't file otherwise. Then again, if we simply close my wife's company (it's a lame duck, dying fast anyway), then we are in the red.

[espo1357]

It's all about recourse, isn't it? I think that if you walk away from a first, recourse is limited or nonexistent. But I've heard you can't walk away from a second. You owe it, no matter what. If anyone can confirm or deny, please do. Because we'll walk away tomorrow if the option is livable.

But if I strip the second, it doesn't exist. No recourse possible. But this is all so confusing. On reputable looking websites, it is stated that no recourse is possible now anyway - due to a law passed in 2009 - that expires on 1/1/2011. 2 months. Then recourse is back in play.

I appreciate anyone's efforts who read or might contribute. Assuming I make any kind of sense. I probably don't. For your questions:

We are over the median. The lawyer's Chapter 13 software indicated we would have $400 per month to repay unsecured debt, and the Plan filing would be successful. Actually, he says he won't file otherwise. Then again, if we simply close my wife's company (it's a lame duck, dying fast anyway), then we are in the red.

Do you really want to keep a home that is that far under?

If the only purpose of filing the 13 is to keep the home, then of course, you should do it because you can strip at a cheap price, the second.

However, you can also neg. a deal with the second on the cheap, and avoid the BK.

Just be sure that it makes sense for you in the long term to stay in the home.

I filed for 13 about a year ago, and at that time, I was ready to keep the home in the long term. But, after over 10 rejections from various companies in the area, and a housing market that gets worse and worse, and some other personal reasons, I am regretting my decison to keep the home. In fact, I am looking to convert to a 7 or get my 13 modifed. If my current 13 is not modified, then I am going to let the 13 get dismissed, and then just file a 7 when I qualify for it.

You really have to think long term on this, and really think you have a great economic future in the city you live in, and the home you are in makes sense to keep.

good luck.