Chapter 7 and 2nd Mortage

[sbman1969]

We Are Going to file Chapter 7 should I continue to pay the second mortage or just the first Mortage

[spidge]

Ah! Fresh meat. Be easy on the new guy.
2nds only come into play in ch 13's.

This is a hot topic so try clicking on new posts as there is uaually some fresh info.

[Over our heads]

Short reply is if you want to keep your home, you need to pay both mortgages.

[pcn]

Short reply is if you want to keep your home, you need to pay both mortgages.

I disagree. This actually is a hot topic, as Spidge replied above. there are a couple of conflicting opinions on this, as well as differing opinions on how to solve the issue. Do a search on lien strip, there is a long one here in the ch7 forum called "lien strip in a chapter 7", I believe. Also check the foreclosure forum for threads on 2nd mortgages. Lots of interesting reading. Unfortunately, no consensus.

[Toby629]

I can only tell you what our situation is and how our attorney has advised us. We are filing a chapter 7 and are current on the 1st. We are behind 5 mo. on the 2nd. Because we owe more on the 1st than what our home and property is now worth, our attorney has advised us to not pay on the 2nd. He said the 2nd will not foreclose as they will get nothing. His advice is to deal with the 2nd later, after discharge, by either doing a chapter 13 lien strip just for the 2nd or doing a settlement of 10 cents on the dollar to the 2nd. We will decide later as to how our situation is as to what we will do with the 2nd. The first thing to consider is how are you in regards to what you owe on your 1st and what your property and home are valued at right now? If you owe more than the value of the property, the 2nd is not likely to foreclose as they would have to pay off the 1st, if no equity there they get nothing, so it is not in their interest then. You are in a better position to offer them a settlement, which is better than nothing for them. Read everything here, knowledge is power, then talk to an attorney, better yet, talk to at least a couple of them, that's what we did. You will get differing opinions from attorneys you will find.

[albacore44]

Now thats very interesting. from everything i have read/heard, you have to be current on both mortgages to qualify for a Ch-7. then after filing you can stop paying the 2nd and deal with it.

Mabee justbroke can jump in and impart some wisdom

[albacore44]

bump

[spidge]

Now thats very interesting. from everything i have read/heard, you have to be current on both mortgages to qualify for a Ch-7. then after filing you can stop paying the 2nd and deal with it.

I sure hope not as I am way behind and would like to file soon.

[justbroke]

Now thats very interesting. from everything i have read/heard, you have to be current on both mortgages to qualify for a Ch-7. then after filing you can stop paying the 2nd and deal with it.

This seems to depend a little on what District you are in and how the Trustees treat payment on debt that you are not going to have anymore. First, it can be of an issue for those who really need that 2nd mortgage payment in order to qualify for a Chapter 7 discharge. If, after removing the 2nd mortgage payment from your Schedule J, and still have negative disposable income and/or a little positive ($100 or so)... then you're okay. The risk is ALWAYS that the 2nd could foreclose, but in this market, the 2nd lienholder isn't likely to foreclose.

If you intend to reaffirm both mortgages, of course they need to be current by discharge, or any reaffirmation has to "cure" the defect to make them current at discharge.

For all intents and purposes, there is absolutely no lien stripping in a Chapter 7. There are folks who go through the Chapter 7, discharging the 2nd Mortgage, and then negotiate with the 2nd mortgage holder to buy out the lien at pennies on the dollar (10%, 15%, 20%). There has been limited documented success with this tactic, but it's not a lien strip.

Your whole goal should be to determine where you want to be in 5 years (after discharge). Are you willing try to do a post-discharge settlement with the 2nd lienholder to have them release the lien? Are you going to just sit on the 2nd lien and hope they never foreclose (taking the risk that property values increase)?

Each debtor needs to look at what they want to do and where they want to be. Selling the home later may even be a problem (in satisfying the 2nd lienholder who still will have a valid and (in rem) enforceable lien). You'll still have to do a short sale if you sell it later.

There are even variations on this as well. Continue paying the first, but discharge both. That has some advantages as well by basically doing a ride-through on the first, but discharging and counting on the 2nd never foreclosing.

Just think about where you want to be and what you're trying to accomplish. Again, you need to look at this for your situation and for what you want to do.

[albacore44]

Good answer

[justbroke]

His advice is to deal with the 2nd later, after discharge, by either doing a chapter 13 lien strip just for the 2nd or doing a settlement of 10 cents on the dollar to the 2nd.

I don't know why Attorney's are recommending a "Chapter 20" in this manner. You cannot receive a discharge in a Chapter 13 filed less than 4 years after a Chapter 7 (11 USC 1328(f)).

These Chapter 20s are traditionally used to deal with post-petition arrears on a mortgage and/or income tax issues (IRS especially).

So let's work this out. You file Chapter 7 and include the 2nd mortgage and some credit cards. All is discharged. Then you file a Chapter 13 6 months later (just to not look like a serial filer). Then you file a Motion to Determine Secured Status and Avoid Lien on the 2nd mortgage. So, the Judge enters an Order stripping the second lien, but the lien does not get stripped if a.) you don't receive a discharge, or b.) you case is otherwise dismissed or converted to a Chapter 7.

Now, combine that with the fact that you can't receive a discharge in the subsequent Chapter 13, therefore, the lien will never be stripped.

I could be wrong, but I don't see it happening. I think it's a waste of time and money.

[spidge]

So in conclusion, of sorts, you are saying that if one intends to remove the 2nd to go for the ch 13 from the get go? Otherwise you will be in limbo on the 2nd again with no sure answers.

[albacore44]

boy these 2nd mortgage topics gin up some controversy. Lots of peeps lookin for answers

[justbroke]

So in conclusion, of sorts, you are saying that if one intends to remove the 2nd to go for the ch 13 from the get go? Otherwise you will be in limbo on the 2nd again with no sure answers.

I'm saying that this is all a strategy and planning "game", so to speak.

Entering a Chapter 13, just to strip a lien, could be a good strategy or a bad one. It's good, if you actually make it through your Chapter 13, and stripping the lien was worth it! It's bad, if you get 90% through the Chapter 13, and then the case gets dismissed. What you then have is a 2nd lien that was never paid on (if you were in a 0% plan as I was), and was never discharged or stripped.

I'm not siding with either planning method, solely because I believe it requires a look at an individual's circumstances, cash on hand (for a settlement), and a host of other factors which come to bear.

I don't believe there's a best way, and as you can see, there are many strategies and also just as many obstacles.

A Chapter 13 is a serious commitment for a period of time that I'm not even sure I can deal with (60 months/5 years in my case). However, it's worth it to me if I can shed my $130K+ 2nd and my $210K+ in other unsecured debt. If I don't make it, my 2nd comes back with a vengeance, although they may not be in any "financial" position to actually foreclose.

The only reason that we have so many options to choose from today, is because of this economy. If this was 2 years ago... we wouldn't be even discussing how to "settle" with a 2nd mortgage holder. We'd be here asking about how to defend a foreclosure...

[Toby629]

Just goes to show that each person's situation is going to be different, dependent on so many variables. The first lawyer we saw, told us we could only do a chapter 13 to deal with the 2nd through lien stripping. No way are we going to go through 3 to 5 years of this over our heads. We found a very experienced attorney who knows the trustee for our area and recommended the best course for us. Chapter 7 it is and we will decide how to deal with the 2nd later on.