My CH7 2nd Mortgage Settlement ("Lien Strip") Idea

[pcn]

Would this have a reasonable chance of success? (1st mortgage is more than recent appraisal.) File ch7. After filing, atty contacts 2nd holder and tells them something like this: "My client has filed ch7. The home is valued 7k less than the first mortgage. We would like to settle the 2nd for x% of the balance, but, if you are not interested, we will convert to a ch13 with a lien strip and you will get essentially nothing." Could this give a person a "safety net" to test the waters with the 2nd holder? Per her initial calculations, we would have a very small ch13 payment (~$100/mo) if we were forced to go that route. This approach was suggested by an atty we met with today. This one was able to answer all our questions with reasonable answers, and maybe more importantly, we feel the most comfortable with her compared to any we have met so far. Thanks for your input.

PS - I know this isn't a true lien strip. I used the nomenclature to help others find the thread in the future, since it's been used in the past. My apologies for perpetuating the error in terms.

[keepmine]

None of us can speak for the junior lein holder.
All you can do is approach them with an offer and see what they say.

[TooMuchCredit]

If lender thought logically this would make sense. Unfortunately they don't. I.E. if you are current and know you will have difficulty paying in the future, they will not deal with you until you are a certain level of delinquency.

That said, it's not always a slam dunk in a Ch. 13. The lender could contest the evaluation. You need to have an appraisal and if your district requires a hearing, you may have to pay the appraiser to testify. I was 20K under what I owe and my 2nd responded and filed an objection to my confirmation. They however, didn't show up at the hearing and the motion was granted.

[pcn]

TooMuchCredit, yes, good point. There's still the option of staying in the ch7 and just not paying the 2nd after discharge. Then, after a while of no payments, reopen negotiations with them. The trouble there is there is no way to force them to negotiate. One more reason not to reaffirm the 1st. If it all eventually goes bad you still have the option to just walk away completely. If I had been paying the 1st only through that time, I would have basically been paying rent, with a tax advantage. I was wondering if the suggestion to the 2nd of going ch13 might be any help in the negotiations.

[relief13035]

TooMuchCredit, yes, good point. There's still the option of staying in the ch7 and just not paying the 2nd after discharge. Then, after a while of no payments, reopen negotiations with them. The trouble there is there is no way to force them to negotiate. One more reason not to reaffirm the 1st. If it all eventually goes bad you still have the option to just walk away completely. If I had been paying the 1st only through that time, I would have basically been paying rent, with a tax advantage. I was wondering if the suggestion to the 2nd of going ch13 might be any help in the negotiations.

This is exactly what I am doing. Haven't paid the 2nd in 4.5 months now. I made a 10% settlement offer for the 2nd.

[pcn]

You've told me, but who is it with again please? Did they accept?

[relief13035]

You've told me, but who is it with again please? Did they accept?

CitiMortgage - they called me today telling me that my offer was submitted for approval.
Only time will tell if I actually made this happen or if they are just messing with me.
What I do know is that DO CALL every 3-4 days with updates.

[sumsitup]

Well , from my experience that would work better if you filed chapter 13 with lien strip, then convert to 7 if it didnt work out.

i dont think (know) if you can file a 7 first then 13. they call that a chapter 20. there has to be like 4 years between them now.

Good luck

[justbroke]

i dont think (know) if you can file a 7 first then 13. they call that a chapter 20. there has to be like 4 years between them now.

A Chapter 20 is a Chapter 7 followed by a Chapter 13. Filing the other way, won't get you anything (not even a discharge). Filing Chapter 7 then a Chapter 13 doesn't get you a discharge (or a lien strip either) because there is no discharge in the subsequent Chapter 13 (unless it has been 4 years since the Chapter 7). Chapter 20s are not for the weak. It's usually reserved for people who have tax related issues or have mortgage arrearages that they can't deal with in the Chapter 7 and hope to fix in the subsequent Chapter 13.

Also, stripping in a Chapter 13 and then converting to Chapter 7, will void the lien strip immediately upon conversion, so that's a no-starter too.

I think the only hope in these cases is what has been presented here. That is... Chapter 7 and without reaffirming. Then going to the 2nd lienholder to see if they'll deal. If it's already been sold to a JDB, you may be better off, as JDBs tend to like money now over possibility of money later.

Just my opinion, and of course... I could be wrong.

[pcn]

I believe the atty said the switch to the 13, if needed, would take place before the ch7 341 meeting, so the ch7 wouldn't really "count" (my words). Does that remove the 4 year requirement between the two, since the ch7 wasn't completed?

[justbroke]

I believe the atty said the switch to the 13, if needed, would take place before the ch7 341 meeting, so the ch7 wouldn't really "count" (my words). Does that remove the 4 year requirement between the two, since the ch7 wasn't completed?

The wording is actually that you "haven't received a discharge"... so even if your case was dismissed, you could still file under the same Chapter or a different one. Yes, the key words are "haven't received".

So, when you switch, you didn't receive a discharge, so that wouldn't count.

[pcn]

Thanks for clearing that up justbroke. So we'd really have two choices left to make after filing the ch7 and talking with the 2nd. We could either switch to the ch13 and do the lien strip if they didn't cooperate, or continue on and gamble that they would negotiate later down the road. If we stayed with the ch7 we would not reaffirm the 1st, to preserve the ability to walk away if things somehow took a turn for the worse.

[justbroke]

Sounds like a plan.