2nd Mortgage Asking Us to Make Them An Offer

[charmd]

I was working with my 2nd Mortgage (HELOC) on a modification and last week they called and asked if I would like to submit an offer for a reduced payoff but I would have to pay this in one lump sum.

My attorney did give me a letter to send to them so they can communicate with me, but I am not sure if a reduced payoff is something that is allowed in a Chapter 13.

I do not have the amount of money for a reduced payoff and would either have to cash in a retirement plan or ask my parents. This is if we could come to an agreement.
Citi said they would take 50% but I am thinking more along the line of 20% max.

Has anyone ever heard of a trustee approving anything like this, especially if I would be taking the money out of a retirement account. I am only on a 3% payback and am wondering if he would want the money to go to unsecurred creditors.

Thanks for any advice

[justbroke]

Did you do a lien strip on the 2nd? I don't know what they offered you, but if it was more than 10% I wouldn't even talk to them. I'd wait for discharge, leaving the 2nd discharged, and then talk. Of course, all this is strategy! Your attorney should be able to guide you on paying off the 2nd, but if it's not a significant reduction (90%) then it's not worth it. Besides, if you're underwater on your first by more than 10%, then it is a really tough choice financially.

What's the actual balance on the HELOC? Is it $100K or is it $10K. That would make a lot of difference to me.

[charmd]

We could not strip the 2nd since it was partially secured. The balance is 195,000 on the HELOC.

We had a 3rd as well since we used this and most of the HELOC for a business that we started and had to close in 2008.
The 3rd was lien striped. That was about $70,000.

We are not underwater with the first and were able to do a loan modification on the interest rate and are at 4.25% fixed.
The second is underwater by about $100,000 which is how I think they came up with the 50%. There is no way I can come up with $100,000.

Lets say we agreed on $30,000 then would that be something a trustee would look at or normally do people wait until they are discharged? We are only 20 payments into a 60 pay plan. The property value has gone down since we filed so I could just wait and see if it goes lower, but since the payment is interest every month I would like to see if there is anyway of paying it off.

[justbroke]

I would seriously run these numbers in a nice spreadsheet. If you're paying the second in Plan now -- you must be since you didn't strip it -- the Trustee may want that money paid towards unsecured creditors. You also need to weigh whether borrowing money from a 401(k) is worth it in the long run. That type of planning requires reviewing your age and when you want to retire. never take a "distribution" from your 401(k)... even if you're over 59.5 years old and you don't get hit with the 10% "extra" penalty.

You need some serious number crunching which is beyond what I can personally do for you in this medium. Negotiating the value of the 2nd will be difficult since there is "some" equity... and it looks like $100K. The only way to really pull it off would be to refinance the first. This makes it very complex with the pending bankruptcy discharge and a lien strip as well (Chapter 13 is not done yet).

May I ask what the rush is anyhow? Would it be better to wait until discharge?

[charmd]

I think it might be better to wait until the 13 is done. We really are not in a rush- I was just shocked they even offered to do something like this, but the bk is going well and I would rather "fly under the radar" and have a discharge in 3 years than ruffle the trustees feathers.

I was not sure if the second mortgage will work with me after the discharge.