How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask socrateaser Your Own Question
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 37390
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
Type Your Bankruptcy Law Question Here...
socrateaser is online now
A new question is answered every 9 seconds

I am considering a chapter 7 bankruptcy and exempting my home.

Customer Question

I am considering a chapter 7 bankruptcy and exempting my home. I had a second mortgage of $280k that the bank (BofA) has "charged off" and sent to collection. This seems odd to me...why not start forclosure? The question is how the court would handle that debt in a chapter 7. Would it be discharged?
Submitted: 7 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 7 years ago.

What you're describing "is" interesting. I doubt that anyone actually knows the real answer yet.


Banks have the following problem. Rreal Property has fallen in value such that the mortgages are worth more than the property to which the mortgages are secured.


If a bank forecloses, it must "mark-to-market" all similar assets in its portfolio. So, if a bank has 20 home loans in a neighborhood and all of them are $200,000 "underwater," then foreclosing on any one of them costs the bank $4,000,000. So, the banks are now choosing to not foreclose, allow the homeowner/borrower to remain in the property "rent-free," and thereby maintain the bank's asset valuation.


If you're a homeowner who put no money down to purchase a home, this is a pretty sweet deal. If you're a prospective buyer, this is a horrible deal, because you can't buy real estate with any security that you're actually paying fair market value for your purchase.


Anyway, I am speculating that your lender has decided to try to collect against you personally, because New York has no "anti-deficiency" law which prevents the lender from getting more than just the underlying property via foreclosure. Which means that the lender can keep its asset value, not have any legal responsibility for maintaining the property (because the bank would be the owner if it forecloses), AND the bank can go after the owner for any other assets that the onwer may have to satisfy the loan.


And, if the bank has a trust deed on the property, it can STILL foreclose later if it wants, even though it has sold the promissory note to a collection agency.


All that said, secured debts, such as trust deeds are generally not dischargable in bankruptcy. But, here, the question becomes: by sellijng the note and severing it from the underlying security, does the lender convert its secured debt into an unsecured debt, which is dischargable in bankruptcy?


I think the answer is "yes," but I don't really know, and I don't think that there's any case law on the issue yet, because this is a brand-new game being played out in the new economy.


I will check around and see if anyone else has a brilliant thought on the subject. If I find it, I will try to post it to this thread. But, otherwise, you will have to get a consult with a local bankruptcy attorney and see what he/she thinks. I have a hunch it will be "I dunno, but let's file and see what happens."


Bankruptcy lawyers give free consultations, generally, so you hav nothing to lose other than an hour of your time.



socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 37390
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and other Bankruptcy Law Specialists are ready to help you
Expert:  socrateaser replied 7 years ago.

I believe that this case is relevant, although it refers to Chapter 13, rather than 7 bankruptcies: In re Zimmer, 313 F.3d 1220 (9th Cir. 12/24/2002). The gist of it is that a debtor may discharge a seured 2nd mortgage on his/her primary residence where the 1st mortgage is worth more than the underlying residence.


That is, because if the property is worth so little so as to make the 2nd loan effectively unsecured, then that loan will be treated as unsecured in fact, regardless of whether or not it was originally secured by the property.


It would be one thing for "you" to try to severe the lender's promissory note from the trust deed on your property. But, if the lender does it by selling the note, then the debt is unsecured and subject to discharge.


What I still don't know is whether the bare trust deed note could be foreclosed on, even though there is no promissory note. Some trust deeds may have language describing the value of their secured interest apart from the note. So, it may be possible to foreclose anyway. But, here again, we're into uncharted waters, I believe.


In any event, if you ever come up with a complete answer, please come back and you can be the expert and I'll be the customer!



JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
< Previous | Next >
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
  • My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer. Eric Redwood City, CA
  • I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight. Michael Wichita, KS
  • PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent. Three H. Houston, TX
  • Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!! Elaine Atlanta, GA
  • It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem. Tony Apopka, FL
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK

Meet The Experts:

  • Terry L.

    Terry L.


    Satisfied Customers:

    Better Business Bur 15yrs bankruptcy experience. Chicago Bar
< Last | Next >
  • Terry L.'s Avatar

    Terry L.


    Satisfied Customers:

    Better Business Bur 15yrs bankruptcy experience. Chicago Bar
  • cortrightlaw's Avatar



    Satisfied Customers:

    Attorney practicing Bankruptcy Law including Chapter 7, Chapter 11, Chapter 12, and Chapter 13.
  • JoeLawyer's Avatar



    Satisfied Customers:

    Attorney in the practice of Bankruptcy Law since 1996
  • Brent Blanchard's Avatar

    Brent Blanchard

    Bankruptcy Attorney

    Satisfied Customers:

    Twelve years experience in all aspects of debtor & creditor BK.
  • A.J.'s Avatar



    Satisfied Customers:

    Experienced consumer bankruptcy attorney.
  • Fritz's Avatar



    Satisfied Customers:

    Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
  • Law Girl's Avatar

    Law Girl


    Satisfied Customers:

    I am an attorney.