"Unsecured Portion if any" ??'s Can someone clarify for me?

[my2girls]

Hi All,
Without sounding ignorant can someone please clarify what "Unsecured Portion if any" means on our original creditor paperwork that was submitted to the court?

I'm asking because I am getting ready to make a settlement offer on our 2nd mortgage and it shows an "unsecured" amount of $10,955 on a balance of $16,998. I was under the impression the entire loan is secured by my house, now I'm confused if a portion is unsecured and wiped out in the bk or not.

Thanks for your help.

[justbroke]

In bankruptcy, a lien is said to be "secured" to the extent that the collateral (your home in this example) has enough value to secure the lien.

For example, if you had a home worth $200,000 on the market. Let's also assume that you had a $190,000 first mortgage and a $30,000 second mortgage. The second mortgage would have an unsecured value of $20,000 and a secured value of $10,000. That's because you owe $220,000 on a $200,000 piece of property.

Technically, the home is entirely secured by your home (the collateral). In reality, there is not enough value in the home to actually secure the entire loan (lien) for the second mortgage. This is why the "claim" shows two values. You have what is known as a "partially secured" loan.

Nothing will be wiped out by the bankruptcy. The first rule of liens in bankruptcy is that ALL liens survive bankruptcy. (Unless you could somehow "avoid" the lien in the bankruptcy.) After you receive your discharge, the lenders (both the first and second mortgage holders), will still have "secured" loans with a lien upon your home. Either could initiate foreclosure proceedings should you fail to keep current on your mortgage or fail to keep hazard insurance or pay property taxes when due.

As to whether the 2nd would foreclose given that they are "partially" secured, that's anyone's guess. However, the 2nd is not "wholly" unsecured so there is some value there. This may make negotiation for a settlement a little more difficult. By difficult, I mean to say that they are not going to let you go for less than what they feel is the "secured" portion. Right now, that looks like about $7K.