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JoeLawyer
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 BK Chpt. 7 can i wipe my 2nd. mortgage & continue to

Resolved Question:

I filed BK Chpt. 7 can i wipe my 2nd. mortgage & continue to negotiate my 1st. mortgage for modification?
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 4 years ago.
No. You can discharge your personal liability on any mortgage in Chapter 7 by simply not reaffirming the debt, but the mortgage lien will stay intact against the real estate so the lender can still foreclose. However, they can't sue you personally if the house does not sell for enough at the foreclosure sale to pay the whole debt since your personal liability was discharged.

You can only discharge a mortgage AND cancel a mortgage lien against property in Chapter 13, and only then when the mortgage is wholly unsecured and you file a special motion to do so.

So, if for example you own a house worth $100,000, and you owe $105,000 on the first mortgage and $20,000 on the second mortgage, if you file Chapter 13 (not Chapter 7) you can file a motion in the court to wipe out the second mortgage since it is completely unsecured (i.e. you owe more on the first mortgage than the property is worth).

But, if your house is worth $100,000 and you owe $99,000 on the first mortgage and $20,000 on the second, the entire $20,000 second mortgage survives since it is not completely unsecured.

As you can see, even though Chapter 13 requires you to make a payment to the creditors for 3 to 5 years, it is still worth it in many cases if it allows you to completely wipe out a mortgage.

Good luck!

Joe

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 4 years ago.

Confused -

When I met with my Lawyer they explained by Filing a Chpt. 7 I would be able to wipe out everything including the Home.

I can reaffirm the Mortgage & by doing this we would then become fully responsible for the loan & it will not be including in the discharge.

 

We bought our home for 489 now worth 290 what would you recommend we do in order to keep our home?

Can we continue to keep the home after filing a Chapter 7? Is, it worth fighting for or just walking away?

 

Expert:  JoeLawyer replied 4 years ago.
Yes it is confusing... You can file Chapter 7 and wipe out your liability on the home, but you cannot remove their lien from the home. In other words, your owing them money and them having a lien on your home are two different things.

You can wipe out the debt and move out of the home and never have to worry about them coming after you for it. In other words, they will foreclose on the home and sell it at a foreclosure sale, and even if the home does not sell for enough to pay off your mortgage, they cannot come after you for the difference because you discharged your liability. But you cannot stop them from foreclosing their lien unless you keep paying them.

So, you cannot file Chapter 7 and wipe out your liability AND keep the home. You have to give the home up if you do not continue to make payments on all mortgages.

But, sometimes in Chapter 13 you can actually get rid of a junior mortgage AND keep the home, as long as the mortgage you are getting rid of is a junior mortgage and it completely unsecured.

Whether or not you decide to keep the home, and what chapter of bankruptcy works best for you, depends on several factors. If you owe more on the first mortgage than the home is worth, you might want to consider filing Chapter 13 and filing a motion to wipe out the second mortgage. If the home is worth more than you owe on the first mortgage, then Chapter 7 is usually preferable since you normally have to either keep both mortgages if you want the house, or wipe both mortgages out if you do not want to keep the house. And, then you have to decide if you can afford to keep paying the mortgages, and it also helps to look at the rental market. If rent will cost as much as a mortgage, then you might want to keep the home. But if you can rent for only half the price, you might want to consider just walking away. Equity is another thing to consider. If you owe a lot more on the house than it is worth, it might be better to walk away. But, if you have a lot of equity in the house, you may not want to give it up so easily.

I know you paid $489,000 for your house and it is only worth $290,000 now, but that still doesn't tell me whether it is worth keeping. If you only owe $100,000 on it, then you still would not likely want to give up a $290,000 house that you only owe $100,000 on. But, if you still owe $489,000 on a $290,000 house, then this might be worth dumping.

I wish I could give you better direction, but we are not allowed to give legal advice online, only information, and telling someone which chapter of bankruptcy we think they should file constitutes giving legal advice, so I legally can't do that. Secondly, I could not tell you which chapter to file even if it were legal to do so since making that determination really requires one to do a lot of questioning and answering, reviewing tax returns, paystubs, appraisals, etc.

So hopefully I illuminated what the issues are and what types of things you should consider, but you will have to rely on your attorney to help you decide which chapter of bankruptcy best meets your goals.

If you have any more questions, or if you need clarification on anything I said above, please do not hesitate to ask and I will try to help you the best I can!

Joe

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.
JoeLawyer, Attorney
Category: Bankruptcy Law
Satisfied Customers: 767
Experience: Attorney in the practice of Bankruptcy Law since 1996
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