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JoeLawyer, Attorney
Category: Bankruptcy Law
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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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I filed for bankruptcy a few days ago and am wondering ...

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I filed for bankruptcy a few days ago and am wondering if you have a 1st and second mortgage and your house is worth less then what you owe can you file the debted amount that is over what the house is worth and still be able to keep your house as long as you make the payments.I also would like to know if you have a loan and your car is secured with it can you file for the debted amount that is above what the car is worth and still keep your car with the debt only being what the car is worth.

Hi Don:

What options a debtor in bankruptcy has is based on which chapter he or she filed: 7 or 13.

You can only get rid of second mortgages in Chapter 13, and only when the amount owed on the first mortgage exceeds the value of the home. I have been doing these a lot lately. Generally, though, in Chapter 7 the debtor has to keep all mortgages in order to keep the house. But, a particular division may have different case law, so this is a good one to ask your attorney.

Regarding cars, if a debtor owes more on a car than it is worth (called "being upside down" on the loan), in Chapter 7 the debtor can file a Motion to Redeem the vehicle, in which the court orders the creditor to accept a one-time lump sum payment for the value of the car, not the amount owed. A company that frequently gives loans to debtors in Chapter 7 to redeem cars is called 722 Redemption Funding, here. In Chapter 13, the debtor can also sometimes only have to pay what the car is worth, not what is owed. In Chapter 13, this is called "cramming down" the car. Cars on which debtors are upside down can be crammed down in Chapter 13 if the car loan is more than 910 days old (about 2 1/2 years) from the date the bankruptcy petition is filed. If the loan is old enough, the debtor only has to pay the value of the car, not the amount owed, through the Plan to keep the car.

I hope this helps and a positive feedback is always appreciated if this was useful to you.

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