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!
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