Chapter 13 and Reaffirmed Chapter 7 Debt Question

[RW3]

I have a question about debts that were REAFFIRMED in a Chapter 7 BK that has been discharged. My primary mortgage was discharged, and we are still making payment on the primary mortgage and still in the home.

It was for a 2nd Mortgage (I know, I know we had a TERRIBLE attorney) that is currently underwater, we stopped paying this reaffirmed debt hoping to settle for 10-15%, but now I am being sued on the note; and settlement talks went nowhere.

I am trying to see if under the BK law if we can still proceed with a lien strip on this 2nd Mortgage (the 1st mortgage is 100% underwater already making the 2nd mortgage debt is "unsecured") even though it was reaffirmed during the Chapter 7 filing.

It has been 4 years since my Chapter 7 was filed/discharged and I am located in CT.

Any case law or any other information would be greatly appreciated.

Thank you.

[justbroke]

If you lived down here in the 11th Circuit (Florida, Georgia, Alabama), you may have been able to re-open your Chapter 7 and discharge the 2nd mortgage! However, you are in the 1st Circuit, so that is a non-starter.

You could go back into a Chapter 13 and see if your District allows the stripping off of a lien. This would not even be a Chapter 20 (Chapter 7 + Chapter 13 = Chapter 20). (Since it was 4 years since your discharge, you would receive a normal discharge in that Chapter 13.) You would destroy your current credit (but that is probably already the case).

Unfortunately I don't know of any options. (I also don't know what 100% underwater means? You mean the property has no value?)

[treynlds]

Connecticut? Same here. I am sorry for your predicament and hope you will find a solution!

[RW3]

100% underwater means the property has no value. The 1st mortgage is underwater by $100K thus the 2nd @ $47,000 is completely unsecured.

My attorney is looking into case law as he wants to make sure that even the 2nd mortgage debt was reaffirmed in the Chapter 7 we can still receive a lien strip on it via a chapter 13; if we were to go that route. He was adamant we can fix the lawsuit, but then we need to work on the Chapter 13, and also explore the option of strategically walk away from our property. CT. is a recourse state but suits on deficiency balances are rare.

[justbroke]

I will take that to mean that the property is worth less than the balance on the first mortgage. A property with no value, is almost impossible; unless it's a superfund site. There's no research to do in order to discharge a reaffirmed debt in a subsequent bankruptcy. They do not magically make a (reaffirmed) debt non-dischargeable.

I would say to keep working with your attorney. It looks like you're not in a good position and if your attorney can help you navigate these shark-infested waters, then you should take that help. Remember, the 2nd is suing on the Note so they are, if they get the judgment, going to go after your other property and maybe even levies and wage garnishment. (I don't know how levies and garnishment work in Connecticut, so I speak in a general tone.)

Ouch!

[RW3]

Not so much looking to discharge the debt, but rather strip the 2nd lien that is associated with the reaffirmed debt since it is "unsecured" due to the home being underwater. I would also add that in CT. as long as it is at least 4 years since you were discharged in a Chapter 7 BK, you can received a discharge from a Chapter 13 once the plan is completed.

[Pjmax]

You said your original attorney was terrible, you didn't mention or I missed it, but I'm hoping you have a different attorney working on this.

[justbroke]

Not so much looking to discharge the debt, but rather strip the 2nd lien that is associated with the reaffirmed debt since it is "unsecured" due to the home being underwater. I would also add that in CT. as long as it is at least 4 years since you were discharged in a Chapter 7 BK, you can received a discharge from a Chapter 13 once the plan is completed.

You reaffirmed the 2nd mortgage, so you would need both a discharge of the Promissory Note and the avoidance of the lien (mortgage). I did write that since it has been 4 years since your Chapter 7, you could receive a discharge in a Chapter 13. In some Districts, it is extremely important that a Chapter 13 (following a Chapter 7) actually be able to obtain a discharge in order to strip a junior lien. I can't tell you specifically if the 1st Circuit Court of Appeals (which covers Connecticut) has addressed this issue of whether a discharge is required. However, and again, it is moot in your case since your Chapter 7 was more than 4 years ago and you would receive a discharge.

Your issue will really be going into a Chapter 13 and for how long. If you are over the median, that's 5 years in the Chapter 13 in order to strip the 2nd. If you end up in a 100% Chapter 13, the entire stripping could be moot. (Please understand that there are strategy questions and it may still be worth stripping in a 100% Chapter 13... in case you were to get a hardship discharge.)

You will need to personally decide whether this is worth it. I personally never suggest that anyone more than 10% underwater should try to keep their property. If the first mortgage is $100K underwater and the home is worth less than $1,000,000 then I do not know what you would accomplish by getting rid of $47K when you're still $100K underwater. But that's me thinking strategically. I don't think it would be worth it to me, personally, to go through a Chapter 13 again, to strip a worthless 2nd mortgage, to still be saddled with a home that is $100K underwater.

But that's me.

[RW3]

I do somewhat concur w/ your assessment. We have some decisions to make on our end. Obviously one of the drivers will be what kind of repayment plan we would be looking at if we did in fact file for a Chapter 13. One of my biggest concerns is if we'd be required to repay the entire amount of the 2nd.

[justbroke]

It appears that you are asking the right questions. I wish you luck.