Chapter 20 - Filing both chapter 7 and Ch 13

[janland]

I am sleuthing around for a solid method to move on and take care of all of this. Goal: Keep my home- reduce mort payment file 2 chapters of BK .... Here's my profile:

Ca. homeowner -last mort pay 10/09 chase bank 5 year ARM up now (yikes)- $60K cc debt, house devalued from $800 to $350 or less-1st $ 440K ($2,037. mo), Heloc $200K.
I have had an atty (#1). since March 2010 but havent taken the absolute steps for anything more than them attempting a loan mod (unsuccessful - some errors made) so I ended up requesting to do the loan mod myself and just let them take my creditors calls...

I have been in contact with Chase, submitting and re submitting documents. With all the harangues about foreclosures, B of A in trouble, etc, I decided to just to wait a tad.
I now think its about time to move forward.

I just spoke with a new atty (#2) today to pick his brain as I am having misgivings about having to rattle up my energy and speak with the uninformed clerks assigned to me in atty # 1 office. I have a substantial deposit on record with #1 and will most likely continue with them if I can get the true picture on this Chapter 20 concept and MAKE SURE IT IS A GOOD FIT FOR ME. Your forum will be immensely valuable in this regard- who out there has successfully done this? I read your "13 first 7 after" posts. .. this is different.

The new atty #2 briefly proferred these options: (1) file 7 - discharge CC debt. with me doing my own loan mod & ignore the second lender. then... (2) File 13 - strip the 2nd and re- pay very little. .

[U] My question is: will Chase ever give me a loan mod if they find out about any of these BK's? All during my discussions with atty #1, it was clear the subject of BK was a big hush hush... now I am wondering about them never mentioning the "Ch 20" idea in the many convo's we have had [/U ).

Your input is valuable ! Pls. post your experience or knowledge. Thank You.

[justbroke]

The new atty #2 briefly proferred these options: (1) file 7 - discharge CC debt. with me doing my own loan mod & ignore the second lender. then... (2) File 13 - strip the 2nd and re- pay very little. .

I'm not sure a Chapter 20 will work to strip the 2nd in the subsequent Chapter 13. I believe the 9th Circuit (California, et al) is like the 11th Circuit in that they require a discharge in order to get a lien strip to work. Since a Chapter 13 that is part of a Chapter 20 cannot, by law, receive a discharge... you can't get the lien strip.

[U] My question is: will Chase ever give me a loan mod if they find out about any of these BK's? All during my discussions with atty #1, it was clear the subject of BK was a big hush hush... now I am wondering about them never mentioning the "Ch 20" idea in the many convo's we have had [/U ).

If Chase finds out you are filing, they may find a way to call your Note and then take all that "large" deposit you have on file! It's called a "right of setoff". You need very good legal representation to understand if the bank can actually use a right of setoff. I learned the hard way and my bank paid off one of my signature loans using my demand deposit account!

Since you are still $90K underwater even if you could strip the second, it is probably not financially in your best interest. You are essentially 20% underwater. I usually tell people that being more than 10% underwater is a pain.

You will find that some California attorneys will boast the Chapter 20 and indicate that you could get a lien stripped in the subsequent Chapter 13. However, the subsequent Chapter 13 requires a discharge. See In Re Winitzky, 08-19337 (Bankr. C.D. Ca. 2009) from the Central District of California, shows what is now a precedent in the 11th Circuit where I live (Florida).

You can also read In Re Jarwis, 390 B.R. 600 (2008) (Bankr. C.D. Illinois 2008), which had a very similar outcome and looked at the necessity of a discharge to strip the lien. (JARWIS is referenced in the Winitzky case.) There are other cases too and they are referenced in that well written opinion in In Re Winitzky, 08-19337 (Bankr. C.D. Ca. 2009).

I'm just saying that you have an uphill battle and I'm not even sure it makes financial sense. I will say that there have been some limited successes but those cases are all fact-specific. One of the California cases that I recall, was where there was a joint debtor (non-debtor spouse), and the strip was granted to the debtor (filing spouse).

(Okay, I looked it up and it was In re Bollerud, 08-12177 (Bankr. S. D. Ca. 2009) - San Diego Division. Again, though, Bollerud is very fact specific. The creditor didn't respond to the Motlon to Value and negative noticing was used. The creditor, in that case, presumptively did not object to the strip.)

[keepsmiling]

Justbroke, I think OP's large deposit is with the attorney, not with Chase.

[HHM]

Concur, a chapter 13 lien strip in a chapter 13 bankruptcy that is not eligible for discharge is a non-starter. There may be some districts that still do it, but the great weight of case law says, no. Yes, I know it doesn't make sense, you previously discharged the 2nd mortgage in the prior 7, so why do you need a discharge in the 13. I don't know. In that sense, the attorney that mentioned the chapter 20 is probably blowing smoke. At a minimum, call him/her back and asked directly, to get a 2nd mortgage lien strip in a chapter 20 scenario, doesn't the subsequent chapter 13 need to be eligible for discharge (note, a debtor must weight 4 years from a prior chapter 7 in order to file a subsequent chapter 13 that is eligible for discharge).

No one here can speak to what Chase will or will not do. The reality, modifications are mostly a pipe dream and not something ANYONE should count on getting as part of their overall plan.

Personally, you are over 20% negative equity on the house on just the first mortgage...WALK AWAY, WALK AWAY, WALK AWAY. There is absolutely no reason to keep the house. Let it go, and rebuy the same house in 3 years for $350,000. That is a much better, and cheaper financial move than trying to dig out of the negative equity you have.

[SunshineGal]

Just thinking here, but in my opinion, the only one who really gains from this "Chapter 20" plan is the attorney who gets double fees.

In order to qualify for a chapter 7, you would have to be under the median, or have enough qualifying expenses to pass the means test. From my understanding, you also have to be current on your mortgage when you file.

Wouldn't it be better for the OP to file a Chapter 13, file a motion to strip the second, and then try to get the first modified? If that didn't work than convert to a chapter 7, include the house, and walk away? If the OP qualifies for a chapter 7 now, than I doubt there would be much unsecured debt included in the plan anyway.

[janland]

Wow. thanks to all who responded. My thought last night was the same as SunshineGal- the benefactor is Mr. Fast Talker... this atty #2 is extremely aggressive verbally, I am glad I had to leave and cut short our convo, I will speak to him much later today. The time frame wait between filings being in years probably I do not have that luxury at this time... (64)
I have contemplated walking away but this is no little cabin in the woods here - lake views and very quiet - a sanctuary - and, now the bummer with ruined credit - first time in my life credit not excellent - i won't be able to buy any house... does anyone know someone who has done a successful loan mod????????????? I am aware of all the income to debt ratios for loan mod and BK - p s there's a calculator you can buy that the banks use. I even went out a got a real W-2 job on top of commission status ...

\I'm now scared to death....fantasy that chase would grant me a house payment that i could handle and just do the orig BK 13 - I really do not know how I could re pay that 200,000. HELOC at this juncture...

[IBroke]

... does anyone know someone who has done a successful loan mod?????????????

Actually, my mother got one. It was a HAMP and reduced our monthly payment to about 50% of a comparable rental - but I certainly agree that that's not the norm. The lender even wanted to cancel the mod after it was fully executed but they lost at court.

[jcj112562]

Just a thought, and I do understand that the 4 walls and a roof do have some value to you...but as wonderful as they are, no house is really worth carrying all of that underwater debt....there are other places I am sure that, while not as nice as the current dwelling, can fulfill that function. If you can rip away the apparent sentimentality and look at this as a cold, hard business decision, which declaring bankruptcy is, it might be easier. Do what is best for yourself, but remember that what is best is not usually what you desire.

John

[HHM]

I think you best start mentally preparing yourself for the idea that you will not be living in that house. If you NEED a modification in order to afford the mortgage, start making plans to move now. Sorry. I hope you get a modification that you can afford, but the reality is, it is unlikely, the house is too upside down, you have too much in arrears, and apparently not enough income to service even the first mortgage.

It is okay to think about "fantasy" land, it is just not healthy to live there. Start planning for reality, and then if something miraculous happens, great.

If you qualify for chapter 7, that is probably the better way to go. No point in getting tied up in a prolonged chapter 13 that is likely to fail anyway (most do). If your situation improves, or you get a first mortgage modification, then maybe you approach the 2nd mortgage after the chapter 7 discharge with a settlement.

[justbroke]

[QUOTE=janland;491317I'm now scared to death....fantasy that chase would grant me a house payment that i could handle and just do the orig BK 13 - I really do not know how I could re pay that 200,000. HELOC at this juncture...[/QUOTE]You never know. I did receive a modification while my Chapter 7 discharge was pending. It took about 4-6 weeks to complete it, through signing and notarizing the new (recordable) documents. However, it did nothing really fantastic and the arrears had to be rolled into the payment.

As HHM writes, I wouldn't rest the fate of the home on a modification. I'm not even sure how they deal with 2nds. There are always "issues" with modifications when there is a second (or junior liens) and the second has to subordinate itself to the first lienholder. This is a recording requirement and most lenders that would do a modification force the debtor to get the junior lienholders to subordinate to the modification! Not easy.