BK-7 Discharged; now BK-13 to strip HELOC.

[bntactnt]

I reside in Central District of CA. I filed BK-7 and received my discharged paper less than a year ago. Now I am considering filing a BK-13 to strip my second/junior lien on my home/residence. I was reading on internet and this process is called a Chapter 20.

Does anyone know if this is possible to do Central District of CA? Please advise...

Thank you!!!

[JSFleischman]

According to In re Winitzky (C.D.Ca.), it doesn't appear as if this move, called a Chapter 20, is permissible. Here's a link to the court's decision: http://l.egal.bz/x9r8dx. In S.D.Ca. the case of In re Hill, 440 BR 176 (2010) went the other way and said Chapter 20 was OK for lien stripping in the absence of the availability of a discharge in Chapter 7. It's also been permitted in N.D.Ca. (Oakland).

Not sure if a judge has over-ruled Winitzky as of now, but you should talk with your lawyer in any event.

[btbeme]

Trustees and courts have really ground down on the so-called Ch 20 process. From my standpoint, the only reason to consider one to strip a second is because you want to stay in the house and have equity that matches the first but leaves the second unsecured. In that case, I'd say that since the second is underwater (and can't be stripped if it isn't) then you are better off negotiating the second away or just sitting and waiting until it forecloses.

Assuming that you did not reaffirm your mortgages, that is. If you did, then the answer is "pay up" because there be dragons on the other side of that equation.

[2manybills]

It is true they are doing Chapter 20's in the Central District, but as btbeme said, the HELOC has to be totally underwater, or the court won't do it. I was able to successfully settle my HELOC for 10 cents on the dollar. I couldn't have done a Chapter 20 because the 2nd still had equity. So this worked out best for us.

[SMinGA2]

You are not eligible for a discharge of debts under ch. 13 unless your ch. 7 case was filed 4+ years before you file ch. 13. You'd need to pay unsecured debt (including the 2nd) in full during a 13 if its been less than 4 years. Defeats the purpose really. Ch. '20' is an extinct creature.

[notalooser]

2manybills, can you please explain how you settled your HELOC? i'm assuming you weren't making payments on time, and they agreed to settle? we were recently discharged chapter 7, and are underwater on 1st and HELOC, but are staying and paying. I can't remember the last time i paid either one of those late. thanks.

[LadyInTheRed]

You are not eligible for a discharge of debts under ch. 13 unless your ch. 7 case was filed 4+ years before you file ch. 13. You'd need to pay unsecured debt (including the 2nd) in full during a 13 if its been less than 4 years. Defeats the purpose really. Ch. '20' is an extinct creature.

No, it is not at all extinct. This issue still varies by district and/or circuit. The 8th Circuit Bankruptcy Appellate Panel allowed a Chap 20 strip where the debtor was not eligible for a discharge: http://volo.abi.org/fisette-v-keller-in-re-fisette

As JSFleischman explains, the districit court in the Central District of California, which is in the 9th Circuit and doesn't have to follow the 8th Circuit ruling, has not been willing to allow a Chap 20 strip to a debtor inelligble for discharge. The law is unsettled in the 9th Circuit as the Northern Distrcit and Southern District have both allowed a lien strip when the debtor was not eligible for discharge. This issue has apparently not been the subject of appeal in the 9th Circuit. bntactn's best chances of a succesful Chap 20 is finding an attorney who is interested in taking the issue to appeals.

Another option is to stop paying the mortgage and try to negotiate a settlement.

[btbeme]

2manybills, can you please explain how you settled your HELOC? i'm assuming you weren't making payments on time, and they agreed to settle? we were recently discharged chapter 7, and are underwater on 1st and HELOC, but are staying and paying. I can't remember the last time i paid either one of those late. thanks.

I am assuming that the 1st and HELOC are held by different banks.

The best way to get their attention is to call and make the offer. After they stop laughing, just stop paying the second. Call again in a few months and offer again. Lather, rinse, repeat. Some day they may listen. But as long as you are under water on the first, they will not foreclose. Paying them anything in this situation is self-defeating, unless they agree to settle - in writing - for what you are willing to pay. Until then, keep the cash.

What you should be seeking is a release of lien, and not a deed in lieu.

This may also be a good time to call the 1st and see if they will do an in-house refi.

[Jf24]

I am assuming that the 1st and HELOC are held by different banks.

What if the 1st and 2nd are from the same credit union? Is settling possible?

[btbeme]

What if the 1st and 2nd are from the same credit union? Is settling possible?

Yes, but it isn't really "settling" the second. What most banks do in that situation is combine the two notes and create a new loan and payment that is more manageable. However, most of the time, they like to add in late fees and such. Certainly try asking...just be certain to read any offer carefully so it doesn't obligate you to a more expensive "solution."

[2manybills]

2manybills, can you please explain how you settled your HELOC? i'm assuming you weren't making payments on time, and they agreed to settle? we were recently discharged chapter 7, and are underwater on 1st and HELOC, but are staying and paying. I can't remember the last time i paid either one of those late. thanks.

We didn't pay our 2nd mortgage for 1-1/2 years. I quit paying after our discharge and then I tried to settle the first at about 6 months. Wells came back offering to settle for 20 cents on the dollar and I said no. Then in about August (9 mos of not paying), I noticed our bank account that was linked to our HELOC was no longer a "Premier" account, which told me that Wells had finally charged off the debt. I waited for about another 6 or 8 months and sent the letter to the same place offering 8 cents on the dollar. Within about 2 weeks, Wells called me and offered 10 cents on the dollar. We accepted, and they sent me docs to sign which I returned with a $20,000.00 cashier's check. It took about a month after that and they recorded a Deed of Full Reconveyance.

[HHM]

Try settling with you HELOC before going the 13 route.

Even in the districts that allow a chapter 20 lien strip, they still require some sort of good faith basis for filing the 13. Meaning, there needs to be some other reason to file the 13 beside striping the inferior mortgage (new, unexpected debt, behind on 1st mortgage etc.). In general, the tide does seem to be shifting toward allowing the so called chapter 20 lien strip, but it is still an uphill battle and as stated, the courts will want to see some other reason for filing the non-dischargeable chapter 13.