What happens to 2nd lein after BK discharge

[WanabeFree]

This is my first post here so be gentle. I have searched but have not found the answer to my question. So here it is.
If I file CH7 and reaffirm my 1st but not my 2nd what happens after the discharge date. As i understand it the 2nd lien is still in force but I am no longer required to make future payments and there only remedy is to either four close or wait until the property is sold some time in the future Correct so far ?
Here is my real question, what happens to unpaid debt balance? Does the debt still incur late fees and or interest charges ?
I ask because we are having no luck getting our 2nd mortgage (HELOC) to permanently modify our loan and cannot afford to pay it. We have successfully negotiated a permanent loan mod with our 1st (Citimortgage) and would like to try and keep our home at least for now. In order to stay we will need to file CH 7 BK to get rid of our non secured debt and hope to eventually settle the 2nd for maybe 10% after the BK is final. Worst case scenario is we end defaulting on the first and they get the house and we move on. We are upside down on the home by about 100k and the 2nd is unlikely to move to fourcloser because they would have to pay off the 1st and loose money after closing costs.
I think the term is strategic default.

[OhioFiler]

I would not recommend reaffirming either loan.

Worst case scenario is you reaffirm the 1st and then default. You'll end up with a deficiency judgment with no remedy.

The payment terms on your HELOC will remain the same post-discharge.

[WanabeFree]

I would not recommend reaffirming either loan.

Worst case scenario is you reaffirm the 1st and then default. You'll end up with a deficiency judgment with no remedy.

The payment terms on your HELOC will remain the same post-discharge.

Ok that brings up another question. If we so not reaffirm either loan and later end up walking away or loosing our home are we done and they can not come after us for anything later. Since the first is a purchase money loan I am pretty sure they only get the home an no deficiency any ways. I am more concerned about the 2nd (Heloc) suing for deficiency post BK. Are you saying by not reaffirming and in the case we loose the home later to foreclosure we are off the hook? If this is the case then I can see how this strategy would encourage them to negotiate a settlement rather than wait us out.

[dpr88]

I would like more info on this also.... We are filing next week and I just got back from our 2nd mortgage leinholder who said that if we walk away a few months down the road after the discharge, they would come after us for the difference after the 1st is satisfied and there is not enough to satisfy theirs (the 2nd) 1st is 281, 2nd is 172 and the house is valued at 400k.

[logansdad]

both loans would be included in bk and discharged accordingly, later on if you decide to move just walk away and there would be nothing that they could come after you for, because it was discharged. My bank is really really pushing us to reaffirm but we are not. So you also need to be prepared to possibly loose the house, we are so that's ok. Our total owed is 175k and the house is worth 140k on a good day. Once you come to terms with the fact that you are ok with starting fresh and not keeping anything that doesn't make sense it becomes easier to rationalize. Hope that helps.

[dpr88]

The 1st and 2nd are NOT included in the bankruptcy (likely we WONT reaffirm).....Just curious if the 2nd could try to collect the difference later on down the road if we cannot make it and walk away from the house..

[logansdad]

The 1st and 2nd are NOT included in the bankruptcy (likely we WONT reaffirm).....Just curious if the 2nd could try to collect the difference later on down the road if we cannot make it and walk away from the house..

Bankruptcy is all or nothing if you file all debt besides student loans, taxes (IRS), or criminal restitution is discharged. You can NOT pick and chose what is included and what is not. You do that through reaffirmation agreements. So if there is no reaffirmation agreement then the house is included in BK.

[aljohnson007]

Agree with logan. If you state your intentions to reaffirm, it doesn't mean that you have to sign an agreement and if you don't, the debt is discharged.
The same applies to any secured debt.

[slam22]

I would like more info on this also.... We are filing next week and I just got back from our 2nd mortgage leinholder who said that if we walk away a few months down the road after the discharge, they would come after us for the difference after the 1st is satisfied and there is not enough to satisfy theirs (the 2nd) 1st is 281, 2nd is 172 and the house is valued at 400k.

Once the discharge takes place neither the 1st or 2nd lienholder can come after you for any deficiency. They are basically SOL. You are free to walk away.

[dpr88]

I don't understand....our attorney asked if we wanted to keep the house and stay to which I understand is NOT being included in the chapter 7..

[aljohnson007]

Regardless of what you and your attorney decide, your secured debts will (or should) be listed on Schedule A and then on your Statement of Intentions, you must assert if you will surrender or reaffirm. If you don't reaffirm, it will be discharged.

[bulletproof77]

They are right (the answers to the OP). You MUST list ALL debt, including first and second. I had to list both my mortgages and even though I am letting the house go into foreclosure, I am glad I did for tax purposes and to avoid any deficiency judgment. And "ride through s" are NOT automatic. If you wish to stay in the home and reaffirm the debt, then you are on the proverbial hook for that debt.