CH7 question regarding 2nd Mortgage

[GreenInkOnPaper]

Any info from anyone who's been through this greatly appreciated.

DH filing seperately, the only joint accounts are the mortage with Countrywide (yuck) and a second with HSBC. We intend to keep the house, but just curious as to reaffirming the second. Is he required to do so, or would attempting to discharge it asking for trouble?

Thanks again!!

[jessegirl]

I am going thru the same thing. We are including the 2nd mortgage in the chapter 7. My understanding is, that in order to discharge your 2nd mortgage in a chapter 7, your house has to appraise for lower then your first mortgage...Atleast that how I understood it when my attorney presented it to me.

[GreenInkOnPaper]

Thanks, jessegirl!

[HHM]

In a chapter 7, you CANNOT discharge the 2nd mortgage and keep the house.

You do not need to reaffirm, but you have to keep making the payments. Jessegirl's advice is related to chapter 13's, you can strip off the 2nd mortgage in a chapter 13 if there is no equity to cover the 2nd mortgage. However, you cannot do so in a chapter 7.
What happens in a chapter 7 if you do not reaffirm is that your "personal" obligation too the 2nd mortgage is discharge, meaning, you cannot be held personally liable to pay the 2nd if you were to default. However, the lien the 2nd mortgage has against the property is still valid. Thus, if you stop making payments, the 2nd mortgage can foreclose.

Bottom line: if you want to keep the house, you need to keep making the payments, but you do not need to reaffirm.

[Overmylimit]

This has been bugging me since we are going chp 7 and we are keeping our house. Why can't you strip a second off in 7 but you can in 13, the values are the same and they are way loer than what the current value is. It just seems like the same should apply for both.

[Chrisi18]

In a chapter 7, you CANNOT discharge the 2nd mortgage and keep the house.

You do not need to reaffirm, but you have to keep making the payments. Jessegirl's advice is related to chapter 13's, you can strip off the 2nd mortgage in a chapter 13 if there is no equity to cover the 2nd mortgage. However, you cannot do so in a chapter 7.
What happens in a chapter 7 if you do not reaffirm is that your "personal" obligation too the 2nd mortgage is discharge, meaning, you cannot be held personally liable to pay the 2nd if you were to default. However, the lien the 2nd mortgage has against the property is still valid. Thus, if you stop making payments, the 2nd mortgage can foreclose.

Bottom line: if you want to keep the house, you need to keep making the payments, but you do not need to reaffirm.

This is what my lawyer told me as well.

[HHM]

This has been bugging me since we are going chp 7 and we are keeping our house. Why can't you strip a second off in 7 but you can in 13, the values are the same and they are way loer than what the current value is. It just seems like the same should apply for both.

You can thank the 2005 congress for that one. As to why, who knows. But, they eliminated the ability to modify the rights of secured creditors in a chapter 7, but left the ability to do so for purchase money security interests in a debtor's primary residence for a chapter 13.

[GreenInkOnPaper]

Thanks HHM- That's pretty much our plan. I have been keeping the payments up - and I'll continue to do so. Really appreciate the info!

[jessegirl]

HHM,

My attorney states we will "discharge / remove" the 2nd mortgage in a Chapter 7. When he says remove, I think he is talking about my personal obligation to this 2nd mortgage. We have a 80 / 20 mortgage $380,000 / $95,000 and the value of our home is $325,000. Once the Chapter 7 is discharged we are going into a chapter 13 to strip the lein from the 2nd mortgage. Do you agree with this approach?

Thanks.....

[HHM]

HHM,

My attorney states we will "discharge / remove" the 2nd mortgage in a Chapter 7. When he says remove, I think he is talking about my personal obligation to this 2nd mortgage. We have a 80 / 20 mortgage $380,000 / $95,000 and the value of our home is $325,000. Once the Chapter 7 is discharged we are going into a chapter 13 to strip the lein from the 2nd mortgage. Do you agree with this approach?

Thanks.....

Do you have any priority debt, IRS, child support etc.

If not, this is a stupid plan and your attorney is churning extra fees. Your attorney is correct, you will discharge your "personal" obligation in a chapter 7 to the second mortgage, but the lien survives. So, for someone who is only filing chapter 7, if they stop paying, the bank can still foreclose. But, you accomplish the same thing in a 13 if you receive your chapter 13 discharge. Unless there is some other reason to file a chapter 7 first, this is a dumb plan. However, in a chapter 13, you strip the 2nd mortgage, and assuming you receive a chapter 13 discharge, you will discharge the your personal obligation.

[jessegirl]

We also have approx. $195,000 of unsecure cc debt. That is why we are also doing the chapter 7. Does this make sense now?


Thanks...

[HHM]

We also have approx. $195,000 of unsecure cc debt. That is why we are also doing the chapter 7. Does this make sense now?


Thanks...

Not really. I still think your attorney is churning fees. Here is the rub, as I see it.

You file 7, and discharge your unsecured debt.
Problems (1). If you stop paying your 2nd, the bank can lift stay and begin foreclosure, and conceivably, could have it complete before you you can file a chapter 13. (2) What exactly would you pay in the 13. Since the deficiency balance on the 2nd is only created when you file a 13, you are paying your attorney, the trustee, and the deficiency on the 2nd in your chapter 13. It would seem a more streamlined approach to file a 13 straight away, get into a 3 year plan (which I assume you can if you can qualify for a 7) and simply make the payments, strip the 2nd, and receive your discharge.

[Dollar Bill]

WOW...this is all news to me.

AM I understanding this correctly? You can file a 7 get a discharge. Then file a 13 for the purposes of priority claims,, and mortgage etc etc.?

I like most others on this forum are upside down on their homes. I would like to get rid of my second mortgage as it has no value. I am not reaffirming but will if they strip it down to what it is worth.

Is this do-able from any approach?

[HHM]

WOW...this is all news to me.

AM I understanding this correctly? You can file a 7 get a discharge. Then file a 13 for the purposes of priority claims,, and mortgage etc etc.?

I like most others on this forum are upside down on their homes. I would like to get rid of my second mortgage as it has no value. I am not reaffirming but will if they strip it down to what it is worth.

Is this do-able from any approach?

Short answer yes, but it is actually difficult to do. The plan described is known as the "chapter 20" BK. The chapter 20 nearly disappeared with the 2005 BK act because ostensibly, if you can afford a 13, it would be very difficult to qualify for a 7.

In any event, if you have IRS debt for example, and other unsecured and secured debt you can do the following assuming you qualify. File chapter 7, discharge your unsecured debt and any personal responsibility to secured debt. Once you receive your chapter 7 discharge, then you turn around and file a chapter 13 to make payments on the non-dischargeable priority debt, i.e. the IRS (or other priority debt). The catch is, your chapter 13 does not get discharged, but since you are paying non-dischargeable debt in the plan, not getting a discharge is not that big deal.

In Jessiegirl's case, the plan she is doing, seems odd and not really in her best interests. Without priorirty debt, there really is no reason to file the chapter 7 first. Remember, you still discharge debt in a chapter 13 at the completion of the plan. If your goal is to lien strip, simply file the 13. Your payment amount is based on disposible income, not how much debt you have. So, in a case where all you have is regular secured and unsecured debt, there is no reason to do a chapter 20.

[BKParalegal]

You cannot obtain a discharge in a 13 if you file within 4 years of a Chapter 7. So the lien strip in a 13 would be pointless. I would run as fast as you can from your attorney.

Good Luck