Question about using 401k to offer to settle on second mortgage

[Ann]

I know I will get blasted for asking this but please here me out first. After I am discharged from my chapter 7 I plan to ask my second mortgage company to settle. We will not have the funds to offer this right away. If we were to take say $5,000.00 out of' our 401 k to settle do you think this is a bad idea? Do you think they would accept this low amount if I owe them around $66,000??? My home is worth about $195-$200,000 and my mortgage balance is $193,000... Do you think this would fly with them? I'm guessing you are going to say NOT to touch our 401k... we plan to stay in the home and that would free up a considerable amount of money for us each month. I need input here please. As always, I appreciate those who take the time to respond!!!

[HHM]

Keep in mind, there is no rush to settle the 2nd mortgage. It is NOT something you must do right away after discharge. Simply stop paying, wait, and see what happens. Start saving money to settle, but if push comes to shove, then you may borrow from your 401K to settle if something urgent happens.

[Mensa1]

I would say that "the wait" is the hardest part for anyone wanting to settle a defaulted mtg/dot. These lenders aren't stupid and they can sense when someone is pressing too hard and is simply too motivated to get this done. The best course is to adopt the philosophy that it doesn't matter whether you get this done or not, (even though it is killing you to get it done). It is about selling this attitude to the lender. In fact I recommend that folks have someone do the negotiating for them, (a disinterested third party) since most homeowners would have a difficult time seperating their emotions while discussing this with their lender. It is human nature.

Ideally the convo with your lender of a defaulted jr mtg wouldn't even take place for 6 months unless they initiated the convo sooner. Slow as you go is the best medicine here. It is only a number to the lender and you need to adopt the same attitude in order to achieve success in negotiating with the lender. As stated, if this isn't you then find someone else to be the (hit-man) negotiator for you.

[SMinGA]

From the #s you post, your house is worth a little more than your 1st mortgage balance. In all of the 2nd settlement discussions I have seen, the home value was not enough to cover the 1st so that the 2nd was purely unsecured.

Your 2nd has some leverage, in that there is some value. As time goes on, your home's value might improve and you'll continue to pay on your 1st lowering that balance. Unfortunately that could possibly limit your options.

[albacore44]

Well thats what I plan on doing since thats where all my money resides. But I plan on waiting to see what happens. In the meantime my 401K continues to grow in value. I'm 25 days away from discharge, and have already stopped paying the 2nd. finally have some financial breathing room and wow how great it feels.

[Ann]

Great to hear it albacore, I wish you much success with your plan. PLEASE keep us posted as to the outcome! I will be looking for updates!!!