2nd mortgage...is it unsecured or still a 2nd mortgage until the end?

[Mexicogirl04]

Hi Everyone...new to this forum but it is very interesting and enlightening! I am located in Washington State.

We lost a business and due to the debts incurred, BK made sense to us. Because of our income, chapter 13 was our only option, so we filed in December 2011. Actually, things haven't been too bad. There have been a few bumps in the road, but we have never missed a payment and the trustee seems pleased with our progress. We are 35 months into it, and looking forward to the end.

We did have a problem. We had a 2nd mortgage (we never missed a payment) through our credit union, that our attorney told us that would be stripped, and we would not have to pay it. Once we filed ch 13, we got notice from the credit union that we were "kicked out" because of the bankruptcy. We did not pay the 2nd outside the BK.

We assumed all was going well, and paying 100% of our plan. We were actually kind of excited; it looked like we would be completed 4-5 months early, according to the website. Our payment amount is tough, but without the 2nd mortgage payment, it looked like we will be at a break even point with the 1st mortgage by the end of the plan.

Unfortunately, our attorney "forgot" to file the strip. He left the firm 1 year into our plan and our new attorney caught the mistake and filed the appropriate paperwork. Then, the CU filed as a unsecured debt, 2 years after we confirmed and our unsecured debt total doubled. Over half of what we pay every month is going to the 2nd mortgage. (per the trustee website) The credit union is getting almost double each month than what they got from us before we filed. We are now at 61% of the plan and we are going to have to pay the entire 60 months. (I also did the math and even at 61%, they are still making money off us. While the balance will not pay in full, they made so much interest before we filed that they will be ahead.)

My question is, since the 2nd isn't officially stripped until after the BK is discharged, can I request a statement from the credit union at the end of the year? (we haven't got a statement since before we filed) I am curious if we are paying any interest or just principle. If there is any interest, I want to deduct it on my taxes. Can we do that? Does not seem fair that the CU can get a double payment each month, yet we do not get the tax benefit. If something happened and our BK is discharged before completion, they would come after us for payment, especially if we ever sold the house. My guess is that we are paying interest and once the BK is officially stripped at discharge, whatever we owe would be a write off to them. Is that true???

I hope my question makes sense. Thanks for reading.

[despritfreya]

Welcome to the forum and congratulations on your continued success in the 13. I will try to answer you questions by breaking down your post. . .

Since the 2nd isn't officially stripped until after the BK is discharged, can I request a statement from the credit union at the end of the year?

Yes, but you may not get a response.

I am curious if we are paying any interest or just principle.

Unsecured creditors are not paid interest by the Trustee. You lender is most likely just applying payments to principle since interest stopped running on the day you filed bk.

If there is any interest, I want to deduct it on my taxes. Can we do that?

Yes, but it is unlikely the CU applied anything to interest.

Does not seem fair that the CU can get a double payment each month, yet we do not get the tax benefit.

Yes it does. You are paying $x per month based upon your ability to pay. You are discharging 40% of the debt. That is the deal you struck to be able to get out from under that debt AND get a lien release from the Credit Union for less than what is owed and in 5 years, not, presumable 15 or 30 years.

If something happened and our BK is discharged (sic.) before completion, they would come after us for payment, especially if we ever sold the house.

I think you meant "dismissed" not "discharged". If disaster strikes and the case is either dismissed or converted to a Chapter 7 the lien strip has no effect. It only applies if you obtain a regular Chapter 13 discharge. Your creditor would be free to exercise any available remedy it has under state law as if there had been no bk with one exception. If you convert to a Chapter 7 and obtain a Chapter 7 discharge, the CU would not be able to ask you for $$. It would only be able to seek recovery against the property which may not happen to due it sitting behind a 1st mortgage lien.

My guess is that we are paying interest and once the BK is officially stripped at discharge, whatever we owe would be a write off to them. Is that true???

You are most likely not paying interest and yes, such would be a write off.

Des.

[LadyInTheRed]

Does not seem fair that the CU can get a double payment each month, yet we do not get the tax benefit.

As Des' says, they are probably not getting any interest. They are getting such large payments because they are probably your largest unsecured creditor. They get paid in proportion to their share of the total unsecured non-priority claims. It is very fair.