Ready to file. Last minute questios on mortgage

[Jf24]

Down to the wire. May get ch 7 filed this week and had some questions.

Behind about 4 months on 1st and 5 on 2nd mortgage. Keeping house, or would like to. 1st underwater.

Paralegal says since I qualify for ch 7 go with that and then do a ch 13 to take care of mortgage areas. Does this make sense? I can take care of 2 months with tax check and try to work with then bank on the rest.

1st and 2nd mortgage is with same cu. What are my options with the 2nd mortgage?

Should I start calling cu now about getting caught up or wait till I file?

[tobee43]

file first...then think about stripping the liens. one thing at a time i know it seems overwhelming, that's because it is. i would wait and not try and do anything until you are filed. then once you do the mortgage companies can't do a thing but after it's all over you can see about working with them. however, make certain you do not reaffirm your mortgages even if your intent is to keep the house!

best of luck to you!

[Jf24]

Thanks

Cramming as much reading of threads about the mortgages and the only thing that worries me is being behind and the 2nd being from the same lender.

[SMinGA2]

My concern: have you actually spoken to the attorney about ch. 7 vs 13, or just the paralegal? The paralegal shouldn't be giving you legal advice.

Specific question to ask: if you file ch. 7, can you then file ch. 13 and strip (and discharge) the 2nd mortgage? My understanding is no since you would not be eligible for a ch. 13 discharge right after filing 7, but some districts may view it differently.

[Jf24]

No, just the paralegal. I guess when I sign I'll be signing with the attorney.

[SMinGA2]

If I were in your shoes - I'd ask questions before signing anything. Don't let them pressure you or put you off. You deserve to be 100% certain you understand what's going on & why it benefits you. If not, you may be left with the option of a) paying more than the house is worth to keep it or b) letting it go. Since your loans are with the same mortgage company AND you're behind, your scenario is different. I understand its not uncommon for people w/ an underwater house to keep making the 1st payment and stop paying the 2nd, hoping to eventually settle. Those situations rely on the fact that lender #2 would have to pay off lender #1.

Have you researched the foreclosure process in your state, to get an idea of how long you'll have if you are not able to file ch. 13/catch up after a 7?

[TheBajan]

I may be under the wrong impression but I thought that if you file a 7 you can't go back and file a 13 to do a lien strip??? Could someone please clarify this for me? We were eligible for a chap 7 but we went with a 13 to strip the second mortgage (as well as to protect assets). BTW.... both our first and second where held with the same lender so I'm not sure how much that matters when stripping the lien. Ours was stripped without any issue but we were current on the first.

Thanks,

The Bajan

[SMinGA2]

That is my understanding also: if you've filed a ch. 7 within 4 years of filing ch. 13, your 13 won't lead to a discharge. Meaning any unsecured debt would be repaid in full during the plan. A lien strip converts the 2nd to unsecured.

But perhaps some things are district specific, and I'm not qualified to give legal advice. So I strongly suggest (not legal advice, just my opinion) that Jf ask a lot of questions and be 100% satisfied with the answers before signing anything.

[Jf24]

Thanks to this forum I can understand things and know what to look for when ready to sign.

At first I didn't think I would qualify for a 7 and was looking to strip the second in a 13 the whole time. When I found out I qualified for the 7 I was telling her I think I would want to do 13 due to stripping the 2nd and because of being behind on the 2 mortgages. I always thought you had to be current to do a 7. At this time (about 2 weeks ago) she said I can do a 7 then a 13. So today was the second time she mentioned this, 7 then 13.

I have not researched the foreclosure process here at all. I can scrape to get current on the 1st but the 2nd will be hard.

[LadyInTheRed]

The question of whether you can do a lien strip in a Chap 13 when you are not eligible for discharge because of a recent Chap 7 (known as a Chap 20) is unsettled law. District courts have ruled both ways on the issue. The only place it has reached appeal is in the 8th Circuit where the Court of Appeals ruled you can do a Chap 20 lien strip even if you are not entitled to a discharge in the Chap 13.

There are conflicting cases within other circuits, and even within districts. There was a recent case in the Eastern District of New York where Judge Trust allowed a Chap 20 lien strip. http://www.gpo.gov/fdsys/pkg/USCOURT...bk-73935-0.pdf But, another judge in the same district could rule differently. I read that in the Florida Middle District, two judges have ruled differently on the issue. In the Southwest District of Florida, at least two judges have ruled in favor of the strip. The district courts in California also have conflicting rulings. So, maybe it will reach appeals in the 9th and 11th Circuits before too long.

This issue is going to depend on the judge, district or circuit until it gets to the Supreme Court or Congress passes a law to clarrify the issue. Anyone contemplating a Chap 20, including Jf24, should discuss it with an experienced bankruptcy attorney in their district. Remember, even if your judge rules that a Chap 20 strip is allowed, your case could be the one that the bank decides to appeal.

[btbeme]

LIR and SM above nail it - a "Ch 20" is a district to district matter. I have a bigger question, however...

If you are 4-5 months behind and are also underwater, what is the motivation to keep the house? Many people, including myself, had some serious and (we thought) unbreakable ties to our homes but later discovered other uses for our money; like savings, investments, school, retirement, etc. Not that your situation isn't both personally and emotionally compelling - I am just curious as to why you wish to stay. Just a question, and nothing more.

Aside from that, the nuts and bolts of a Ch 20 may not be of more benefit to you than doing a Ch 7 and then negotiating a settlement or modification with the bank. Having both loans at the same site can be of benefit if you are far underwater, as the bank will take the biggest hit possible if you default. A good and experienced atty can often be of huge assistance in negotiating a loan mod after Ch 7 by threatening a Ch 13 afterwards... but those are deep waters not easily negotiated by a paralegal or anyone less experienced than one of the best attorneys in town.

Another way to think about this is this - After a Ch 7 discharge (assuming you did not reaffirm the mortgages) you have nothing to lose by trying to negotiate HARD with the bank. A Ch 13 can always be a fallback if all else fails.

[Jf24]

Under water on 1st by only around $15000. Also renting here is not cheap, about what my first mortgage is.

[Pandora]

Make sure you understand how a 13 works with arrears - you must make not only the arrears payment in your plan but you also must make your regular payment on time, every time.

Can you afford essentially 4 payments since you have arrears on both 1st and 2nd mortgages as well as regular payments to both AND the Trustee's fee?

Another thing to make sure you know up front is that since you're working with a CU on both the 1st and 2nd...read the fine print. Usually cross collateralization clauses abound; CU's are notorious for this. You also run the highest risk of foreclosure because both mortgages are with the same lender.