settle 2nd mortgage question

[nichole04]

Has anyone here on this forum ever had success settling with Suntrust Bank on a 2nd mortgage after filing chapter 7?

[mbmullen]

why wasn't that taken care of with the bk?

[lrprn]

why wasn't that taken care of with the bk?

Because you can't strip a second mortgage in Ch 7. Lien strips can only be done in Ch 13.

[ryan]

Because you can't strip a second mortgage in Ch 7. Lien strips can only be done in Ch 13.

What exactly does "strip a second" mean? ...does that mean a second cannot be discharged in a chapter 7, assuming you do not want to keep the house?

Thanks

[mbmullen]

what if your first already foreclosed and the second is coming after you for their balance. That makes it unsecured and it can be wiped out??

[BKDefender]

Ryan,
In a chapter 13 BK, if the value of the home that the filer wants to retain is less than the amount owed on the 1st mortgage, then the filer (usually his/her attorney though) can file either a motion or an adversary proceeding (depends on the jurisdiction) to have the lien from the 2nd mortgage 'stripped' of it's secured status and converted to unsecured. Because it is converted to an unsecured debt, it's just like a big credit card and is treated just like the other unsecured credit card debts. You are only allowed to do that in a chapter 13, not a chapter 7, to give you an incentive to do chapter 13.
I have a client that is perfect for a chapter 7 but has to file a chapter 13 because his 2nd mortgage is ~$100k or so and he can't pay it anymore. That's the only reason he'll be doing a chapter 13.

--William

[ryan]

BKDefender, I haven't had my coffee this morning and am just plain 'slow' today, :-) ....

as to your above answer, if I have a house in FC on first, that also has a second (heloc) ..I want to give up house and will file BK7 this summer, will only the first be discharged as a debt then? ...are you saying the only way the second (heloc) can be discharged is by filing ch13? Thanks

[kudumaned]

Hi Ryan, its my belief that all debt is discharged in a chapter 7 including HELOCS as long as you are not re-affirming those loans. The liens will stay in place, but you are no longer responsible for the payments or the debt. Hope this helps. Good Luck.

[pcn]

Ryan,
In a chapter 13 BK, if the value of the home that the filer wants to retain is less than the amount owed on the 1st mortgage, then the filer (usually his/her attorney though) can file either a motion or an adversary proceeding (depends on the jurisdiction) to have the lien from the 2nd mortgage 'stripped' of it's secured status and converted to unsecured. Because it is converted to an unsecured debt, it's just like a big credit card and is treated just like the other unsecured credit card debts. You are only allowed to do that in a chapter 13, not a chapter 7, to give you an incentive to do chapter 13.
I have a client that is perfect for a chapter 7 but has to file a chapter 13 because his 2nd mortgage is ~$100k or so and he can't pay it anymore. That's the only reason he'll be doing a chapter 13.

--William

Is it safe to assume that he is not upside down on the 1st? If he was, couldn't he go ch7 and negotiate with the 2nd after discharge? What is your opinion on going the settlement route rather than with a lien strip if both are options? Thanks.

[SleepWellNow]

We filed Chapter 7 and were discharged on both loans. We were able to settle our second of approx. $63,000 for $3,376 in exchange for "settlement in full" and a lien release. It was a gamble doing it this way but I was willing to let the house go if we weren't able to get the second lien released.

[BKDefender]

Ryan, if you don't want the house and have no other impediments to filing a chapter 7, then file a Chapter 7 which will discharge you of all your personal liability on your debts, including the 1st & 2nd mortgage. In that situation, the only reason you would want to do a Chapter 13 is if you wanted to keep your house. i.e. you could strip the secured status of the 2nd mortgage, presuming you owed more on your 1st mortgage than your house was worth, then your liability on the 2nd would be discharged, you would reaffirm your 1st mortgage and emerge from chapter 13 three to five years later with only a first mortgage and discharge all other debts.

But again, if you don't want the house, just do chapter 7 and get rid of the house, the liability on the 1st mortgage and the liability on the 2nd mortgage.

As far as doing just chapter 7 and keeping the house, you could reaffirm the first mortgage but not the 2nd mortgage and hope that the 2nd mortgage company doesn't file a foreclosure on your home. It doesn't make any economic sense for them to foreclose on the house since they'll have to pay the 1st mtg off completely before the 2nd can get anything from the sale. If the house is worth less than is owed on the 1st, then the 2nd mortgage company just sent $5k-$10k to foreclose on a house and they won't get their money back. In that case, you probably could negotiate a settlement on the 2nd to pay them 5%-10% of the 2nd and they'll go away.

--William

[ryan]

William, thanks so much. That totally clarifies the matter. Once that is all done its off to relocating to LV....:-)

[BKDefender]

Ryan, if you actually move to Vegas, give me a call and we can grab lunch.

--William

[ryan]

Ryan, if you actually move to Vegas, give me a call and we can grab lunch. --William

...will do, and it will be my treat, counselor.

[nichole04]

any settlements after ch 7 bk with suntrust bank?