If you file a Chapter 13 Bankruptcy, you will have to make payments of all disposable income to the Bankruptcy court for 3 - 5 years. At the end of the 3 - 5 years, your unsecured debts - including the second mortgage - will be discharged, and the second mortgage lien will be removed from the house.
If you file a Chapter 7 Bankruptcy, wherein you would pay nothing to the court, the obligation to pay the second mortgage will be discharged, but the lien will not be removed.
I think this is what you wanted to know. If not, please let me know.
Regarding my rental property, last years taxes were paid by the bank. When we were affording the home our payments were approx $4000/mo - the renters pay $1200/mo - I have no idea when forclosure on that property will happen or even if it will. The lender continues occupancy checks monthly. I'm steering towards chapter 13 but still unclear about the process concerning the instrument of libility naming me as the borrower. what happens to that liability, even though there is no equity in the property? And regarding the negative exsiting net rent when calculated how will the courts proceed in deciding what to do?
For the rental property, your obligation to pay the mortgage is discharged, regardless of the equity. The obligation to pay that mortgage would be discharged in a Chapter 7 or a Chapter 13. Don't forget, though, that discharging a mortgage is not the same as removing the lien. Even though you no longer have the legal obligation to pay that mortgage, the lender can still foreclose on and sell the house if the mortgage is not being paid.
You would deduct any expenses - if any - you are actually paying for the rental property, and deduct those from your gross rental income. The resulting net rental income is added to any other income you have to determine how much you have to pay to the Bankruptcy court each month. You would not be able to subtract your mortgage payment or the property taxes on the rental property, as you are not paying those.
That almost sounds like someting is missing... In that sinerio technically I could still be in posession of the property until the forclosure procedings or sale of the house are final, dispite the out come of the chapter 7, am I correct in that assumption? and if that is true and a lender forcloses, will a foreclosure negative still go on a credit report?
For clarity, when a person discharged of that obligation to pay the mortgage, property then is no longer theirs to collect money's from and what, if you know, would happen to the tennants? And in this process would a person know when they are approximately 30-45 days from being discharged from the obligation? sorry so deep...
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