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Im in the process of foreclosure on my home. I have a 1st and

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Im in the process of foreclosure on my home. I have a 1st and 2nd mortgage(both with the same bank). I have been told that the 2nd mortgage will come after me for the balance after foreclosure. My credit card debt is only 15k (husband and wife debt) and I have never been late. I dont qualify for chapter 7 because of our income but was told that we can file chapter 13 surredering the home and then they cant come after us for the balance. Im weary only because I would like to keep my credit cards and pay them, but I could not afford to have a judgment for 72k (2nd mortgae balance) in the future either. I was also informed that if I wait until they file a deficiency judgment, because it will be unsecured debt and our income, we would have to repay it in payments. It wouldnt get surrendered. Is this all true?
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 5 years ago.
Hello smith:

In response to "Is this all true?":

I have been told that the 2nd mortgage will come after me for the balance after foreclosure.

Yes, in most states. When a house is sold at a foreclosure sale, the proceeds received from the sale are then paid to the lender, and any balance which is still unpaid (called the "deficiency balance") can be pursued by the lender against the borrower. There are a few states that do not allow lenders to pursue the deficiency balance, or do not allow the lender to pursue it if it is a self-help state (meaning the foreclosure doesn't have to go through a court but can be done privately by the lender) and the lender opts to pursue a self-help, rather than judicial, foreclosure. But, in most states the lender can and will come after the borrower if the foreclosure sale does not net enough money to cover the amount owed (including second mortgage lenders).

I dont qualify for chapter 7 because of our income but was told that we can file chapter 13 surrendering the home and then they cant come after us for the balance.

Yes and no. I do not know about your income, but you can go HERE and select your state of residence and family size to see how much gross income you are allowed to make to qualify for Chapter 7. If your income is too high, you can still get into Chapter 7 sometimes if you have enough allowable expenses, which you will need to ask your attorney about since it is a very complicated test. Most of the time, though, if you make more than the chart shows, you have to file Chapter 13.

If you make too much money for a Chapter 7, you can still file a Chapter 13, surrender the home, and pay as much as you can afford for 5 years into a Chapter 13 Plan. That money will be disbursed to your creditors (credit card lenders, foreclosure lenders, etc). Any remaining balances on any of the debts once your 5 year Chapter 13 Plan is over will be wiped clean and discharged. Thus my yes-no answer: yes the debts will be wiped out partially, but not entirely since you will be paying a portion of the debts back based on how much you can afford.

I was also informed that if I wait until they file a deficiency judgment, because it will be unsecured debt and our income, we would have to repay it in payments.

If there is a deficiency balance after the sale of the home, the lender can normally go after the buyer and the court will often order the borrower to make payments, or allow the lender to garnish the borrower's wages. If the borrower files bankruptcy, though, the lender's deficiency balance either gets discharged in a Chapter 7, or only gets a portion paid back in Chapter 13, depending on how much the borrower can afford to repay.

OTHER OPTIONS:

You may be able to do a "deed in lieu of foreclosure." This is where you contact the lender and advise them that you cannot pay the first and second mortgages you owe to them, and that you want to sign the house back over to them in return for their forgiving the mortgages. Some lenders have different hoops they make you jump through before they will accept a deed in lieu of foreclosure, such as requiring you to put the house on the market with a realtor for some period of time (3 mo, 6 mo, etc). Then, if it does not sell, they will accept the deed in lieu of foreclosure. If it does get an offer and sells and pays off the mortgages, great. If it gets an offer which is not enough to pay off the mortgages, mortgage lenders will often do a "short sale," where they sell it for less than what it is owed and forgive the difference. Talk to your realtor about these options.

ANOTHER THOUGHT:
If you do decide to file bankruptcy, you will take a credit score hit as a result of the filing, but the hit won't likely be much worse whether you do or do not keep the credit cards, so conventional wisdom says to DISCHARGE IT ALL. It is NOT usually a good idea to keep the credit card debt. I once heard a bankruptcy trustee explain to some debtors in their hearing, who wanted to keep their credit cards, that keeping unsecured debt in a bankruptcy was like taking a shower with a raincoat on. I think that was sage advice.

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

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) Joseph Ross. All rights reserved.
Customer: replied 5 years ago.

Thanks for the answer: One thing is still not to clear. I was told that if we file chapter 13 (and I checked your link and I dont qualify for chapter 7) and surrender the home "n full satisfaction" before going into foreclosre, then after foreclosing, they cannot come after me for the balance of the home because of the discharge from my chapter 13. Is that true?

Expert:  JoeLawyer replied 5 years ago.
Maybe. I'm not sure case law has settled that issue on a national level. In my state, if you include "in full satisfaction" language in the Plan, the creditor will normally object and normally win, since the courts here have determined that the mortgage lender is entitled to file an unsecured claim based on the deficiency balance. It is possible that your jurisdiction has held the opposite.

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) Joseph Ross. All rights reserved.

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Category: Bankruptcy Law
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Experience: Attorney in the practice of Bankruptcy Law since 1996
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