BK 13 Advice-Prior BK7 discharge (Lien Strip)

[1richard1]

Need some input, thoughts as to the following:

* BK 7 discharged Aug. 2011
* All unsecured debt discharged through the BK 7
* 1st mortgage loan is 100% current on payments, did not sign a re-affirmation agreement. Instead, pay as you go and retaining property
* 2nd mortgage loan with BOA, which is a heloc is 100% unsecured-underwater and was also discharged through the BK 7. However, lien still remains attached to the property. No payments made to them, nor will any payments be made to them.

Our plan is to file a BK 13 once we reach the "4 year" waiting period after the BK 7 is discharged, pay for the appraisal on our home, and so forth.

Questions:
1. Within our BK 13 repayment plan we'd pay our 1st mortgage and auto loan, however no other unsecured debts...except for the previous 2nd mortgage loan that was discharged through BK 7. Do we have to then make payments to this loan through the BK 13 for 3 to 5 years, likely 5 years even though the lien was discharged?

2. We show a monthly disposable income of around $5,000, even after all monthly expenses paid. However, the previous payment to the BOA heloc prior to the BK 7 discharge had a monthly payment of $500-$900 monthly, contingent on variable interest rates, being it was a heloc. Would our BK attorney and BK trustee then force us to pay BOA most all our disposable income even though the loan was discharged?

End Game:

Retain the home, continue paying the 1st mortgage, have the 2nd mortgage-heloc with BOA lien stripped, fulfill the BK 13 monthly payment plan and pay $0 to as little as possible each month to BOA.

[momofthree]

1.) Why not just settle your 2nd mortgage in exchange for a lien-release? With your dmi, you should be able to save up a settlement offer fairly quickly.
2.) How far underwater are you on the first & what is your 2nd mortgage balance?

[1richard1]

I've contacted BOA a number of times, customer service dept., bankruptcy dept., collections dept. all of whom indicated they do not offer settlements. Consistent message by BOA is they don't settle, unless the loan is part of a "short sale." Further, they tell me they won't foreclose since no equity and they will allow the 1st mortgage loan to take action. Meaning, BOA will do nothing but wait for the property value to increase or I take action. The 1st mortgage balance is $740,000 with a 3% interest rate, never missed a payment. The 2nd mortgage balance-heloc with BOA is $104,000, 2nd is 100% underwater and was discharged through the BK 7. However, the lien remains attached to the house and will only reconvey., if a settlement or lien strip through BK 13.

What happens in a BK 13 if I have a few thousand each month of extra disposable monthly income, yet attempting to lien strip a previous discharged 2nd mortgage from a prior BK 7? Do I have to make large payments each month to the BK 13 court, they in turn pay a previous discharged 2nd mortgage? Anyone get a settlement offer approved by BOA? If so, how?

[1richard1]

My preference, lien strip the 2nd mortgage through the BK 13. However, concern about my DMI and how it will be treated by the court in regards to a previous discharged 2nd mortgage. This is the area of confusion, need input.

[spidge]

So you had a 2nd and discharged it then somehow ended up with another 2nd? It reads a bit confusing to me. Sounds like an abuse issue will arise, but don't take my word.
Why did you not just file a 13 in the first place? Now you are extending your BK experience to a much longer period of time.

[mountanddo]

I think his 2nd was discharged in his C7 and he did not reaffirm his 1st. Even though it was discharged there is still a lien on the house? What is your goal? Now that the 2nd has been discharged do you have equity in your home and are looking to sell?

[1richard1]

I think his 2nd was discharged in his C7 and he did not reaffirm his 1st. Even though it was discharged there is still a lien on the house? What is your goal? Now that the 2nd has been discharged do you have equity in your home and are looking to sell?

You're correct. 1st and 2nd mortgages both discharged through the BK 7. We've continued to pay the same first mortgage without a re-affirmation agreement (pay as you go). Same initial 2nd mortgage is 100% underwater/unsecured and has not received any further payments, discharged through the BK7 and correct lien remains attached to the title to the property.

Goal: BK 13 to lien strip the 2nd mortgage, however issue arises about monthly disposable income. How is DMI treated in a Ch. 13 case in regards to a previous discharged 2nd mortgage that we want to lien strip??? Within a Ch. 13 re-payment plan to the court would some of the payment go towards the previously discharged 2nd mortgage? Yes, no? What happens if disposable income of around $5,000 even after paying the 1st mortgage, utilities, cars, ins. and so forth? Again, BOA will not settle, so we prefer to lien strip them yet issue is the repayment plan/disposable monthly income consideration.

[justbroke]

Déjà vu? I thought I already answered this in another thread???

In any event, you are not obligated to pay the "discharged" 2nd mortgage in the subsequent Chapter 13. You only pay things that you are legally required to pay. The question will be, whether the Chapter 13 was proposed in good faith, and whether your District (Circuit) has dealt with liens stripping with no discharge. Additionally, any new credit that you have acquired since discharge, especially personal property, may need to be dealt with in the new Chapter 13.

Since this would be a Chapter 20, you need a really good attorney who knows the pitfalls and minefields involved in YOUR District.

[1richard1]

Déjà vu? I thought I already answered this in another thread???

In any event, you are not obligated to pay the "discharged" 2nd mortgage in the subsequent Chapter 13. You only pay things that you are legally required to pay. The question will be, whether the Chapter 13 was proposed in good faith, and whether your District (Circuit) has dealt with liens stripping with no discharge. Additionally, any new credit that you have acquired since discharge, especially personal property, may need to be dealt with in the new Chapter 13.

Since this would be a Chapter 20, you need a really good attorney who knows the pitfalls and minefields involved in YOUR District.

Our BK 7 was discharged Aug. 2011, and our BK attorney advised to wait 4 years after the BK 7 was discharged to file the BK 13. To clarify, even with high disposable monthly income none of the BK 13 payment needs to go towards the 2nd mortgage that was previously discharged???

[justbroke]

Our BK 7 was discharged Aug. 2011, and our BK attorney advised to wait 4 years after the BK 7 was discharged to file the BK 13. To clarify, even with high disposable monthly income none of the BK 13 payment needs to go towards the 2nd mortgage that was previously discharged???

That is the question. The reason to wait 4 years, is so that you'd be entitled to a discharge in the Chapter 13. If you filed the Chapter 13 prior to the 4 years passing, you would not be entitled to a discharge. There is still a split amongst the court on whether you can lien-strip a "wholly unsecured" mortgage in a Chapter 13 if there is no discharge. There are some Districts (and even at the appellate, but not Circuit level) that found that you can lien strip in a Chapter 13 even if there is no discharge; so long as the case was filed in good faith.

Unfortunately, there was at least one case in Southern California, In re Hill, 440 B.R. 176 (Bankr. S.D. Cal. 2010), which found that you'd still need to pay the unsecured portion of the "stripped lien" during the Chapter 13! This means, that with $5K DMI, you could pay off the $100K second in no time. At least there would be no interest.

It is certainly new and an unchartered for me. For years, the theory was that you can't get the lien strip without the discharge. That is, at least, the caselaw here in Florida. Some Districts and Circuits have said otherwise (more recently the 8th Circuit Court of Appeal).

[biotechsolution]

Yes. You will be required to pay all of your DMI to your unsecured creditors, including the 2nd mortgage. If you have 3-4K of DMI you would end up paying it all off in your Chapter 13.
You sort of stuck, I agree with the previous poster, the Chapter 13 to start was the best option, why wasn't if filed??

[LadyInTheRed]

From other posts, the OP is in the Central District of CA which has ruled that you cannot do a Chap 20 if there is no discharge in the 13. The OP's attorney has advised to wait to file Chap 13 in order to get a discharge.

I would worry about the bad faith issue. The Central District's ruling on Chap 20 provides some insight as to how the court might determine whether the Chap 13 is filed in bad faith:

Insufficient information and no argument have been presented on the good faith
question here, but the debtors will need to address it should they wish to amend their plan and continue with this case following this ruling. The debtors first filed under Chapter 7 although they qualified for Chapter 13. At that time, the debtors were three months behind in payments to both Chase and Greenpoint. By the time the Chapter 13 case was filed in November, the debt scheduled for Chase had increased by $6500, and the debt to Greenpoint had increased by $27,000, indicating that no further payments were made following the Chapter 7 filing. The debtors also listed Chase as partially secured in their Chapter 7 schedules. By November and the Chapter 13 filing, debtors allege that Chase's lien was completely unsecured. The value of
the debtors' home is reported to have decreased by $100,000 in only three months. Chase was prevented from recording its notice of default by the Chapter 7 filing and then prevented from proceeding with the sale by the Chapter 13 filing. This scenario at least raises the question of whether there was a plan to follow the Chapter 7 filing with Chapter 13 all along. (footnote 8 reference)

(footnote 8 The means test in both cases was completed correctly, but it leaves an odd result in light of the debtor's plan to completely avoid paying Chase. The debtors avoided any determination under the Chapter 7 means test that they had sufficient income to be required to convert to Chapter 13 by listing secured payments of $1217 to Chase on lines 42 and 43 of Form B22A (the Chapter 7 Means Test Form). While this is the correct calculation for the means test, omitting the payment to Chase would have resulted in monthly disposable income of $673.86 --an insufficient amount to make the monthly second trust deed payments, but an honest result if they were planning on filing a Chapter 13 at that time to strip Chase's lien. Similarly, Form
B22C (the Chapter 13 Means Test Form) schedules both the regular monthly payment and the cure amounts for Chase on lines 47 and 48, increasing the deductions for debt payment by $1297 when there was a stated intention not to pay such debts.
With certain changes to their budget and a five year plan, the second trust deed could possibly be paid and whether the property valuation was made with adequate inquiry. While property values did drop quickly last year, this seems extraordinary. For over a year, debtors have avoided foreclosure and made only the few payments to the first trust deed holder required to stay in the Chapter 13 case. While debtors did have some problems with earlier periods of unemployment and significant debts, they have now increased their income by $1500 and may be able to cure the arrearages on both trust deeds through a five year plan.

The fact that the OP is waiting to file the Chap 13 may help, but if there is no other good reason to file a Chap 13, I'd be concerned.

In a google search, I found one article that said some courts allowing a Chap 20 have considered the underlying debt as new unsecured debt, even though the debt had been discharged in Chap 7. I haven't found anything about how the Central District of CA handles the issue, but if the court allows an unsecured claim by BoA, the entire second would end up getting paid off with $5,000 of monthly dmi.

If you are going to go forward with the 13, you definitely want a good attorney who is willing to fight for it. Be sure you understand what the fight will cost.

Keep in mind that Bank of America policies regarding settling could change and that they could sell your lien in the future. Also, the district court's position could be overturned by a higher court before you get around to filing the 13.

[LadyInTheRed]

Yes. You will be required to pay all of your DMI to your unsecured creditors, including the 2nd mortgage. If you have 3-4K of DMI you would end up paying it all off in your Chapter 13.

Maybe, maybe not. Technically, the discharged debt does not exist and is not a valid unsecured claim. But, some courts have apparently allowed the claim anyway. See my comment in my above post.

[biotechsolution]

but it at the moment it is a valid secured claim. The lien passed through the chapter 7 unaffected. You are right if the debtor files the Chapter 13 without any other debt but the 2nd mortgage it could be considered bad faith. The 13 should have been filed first. I think the OP wanted to roll the dice on getting a 5% settlement instead of 5 years of payments. BOA isn't waiting it out. They are figuring a 1st mortgage of 740K means the house could definitely recoup some of it's value in the years to come.

[LadyInTheRed]

but it at the moment it is a valid secured claim. The lien passed through the chapter 7 unaffected.

Yes, but the question is whether the mortgage can be a valid unsecured claim if the lien is stripped in the 13 when the debtors personal liability for the mortgage was discharged in the 7. I read an article saying that some courts have approved such claims and others have not. But there were no cites to case law or mention of which courts have ruled which way.