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Roger
Roger, Attorney
Category: Bankruptcy Law
Satisfied Customers: 26346
Experience:  BV Rated by Martindale-Hubbell; SuperLawyer rating by West
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Can I file chapter 7 to get rid of credit card debt and a second

Customer Question

Can I file chapter 7 to get rid of credit card debt and a second mortgage yet reaffirm my first mortgage? Mortgages = $195,000. House is worth between $120-135, 000
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  Roger replied 2 years ago.

Hi - my name is XXXXX XXXXX I'm a Bankruptcy litigation attorney here to assist you.

If you file Chapter 7, the the first or second lienholder has the right to foreclose on the property. Even if you were to reaffirm the first mortgage, that won't stop the second from trying to foreclose.

If the second were to do this, it would owe the first lienholder any proceeds up to the payoff amount.

Thus, the only way to keep the house would be to reaffirm both mortgages.

Customer: replied 2 years ago.
Will chapter 13 allow me to dump the second & credit card debt since I'm upside down?
Expert:  Roger replied 2 years ago.

No. A 13 would require you to pay both the first and second as well in order to keep the property.

Let me back up a little - in a chapter 7, your credit card debts can be discharged. Also, your first and second mortgage obligation can be discharged as well, but if that happens, you would lose the house as it would be returned to the lender through foreclosure.

If you want to keep the house in a chapter 7, you would have to reaffirm both mortgages.

Customer: replied 2 years ago.

Then to keep the house, which is worth maybe 1/3 of the mortgage payoff, is there anything I can do to reaffirm the first and dump the second AND get rid of credit card debt? In other words, is there any other alternative? I worked too hard to provide for others and need a place to stay!

A friend had similar situation and was able to get rid of her second through cha pter 13. I'm so confused...

Expert:  Roger replied 2 years ago.

There is a possibility to reduce or eliminate the amount you owe on your second mortgage through a chapter 13 if the lien is "wholly undersecured".

This means that the property is not worth more than the first mortgage balance. In your initial post, you indicated that your mortgages combined totaled $195,000. I didn't know what part was the first and what part was the second.

However, if you believe your house is worth $130,000, and your first mortgage balance is more than that, your second would be wholly unsecured and would be subject to elimination as an unsecured debt. However, if your first mortgage has a balance of less than $130,000, your second would not be wholly unsecured, and you could not get rid of it in full. However, you could try to reduce the amount you repay by the home's value.

In your friend's case, the debt was likely wholly unsecured.

However, if you file a 13, you're likely to have to pay all of your credit card debts back as well.

Customer: replied 2 years ago.
The 1st is $146K, so the 2nd (approximately $48K)would qualify as "wholly unsecured," if I understand you correctly. Now how about the credit cards? I thought since they're unsecured, they would be eliminated as well; what did I miss?
Expert:  Roger replied 2 years ago.
Here's how 13 works in a nutshell:

To qualify for Chapter 13 bankruptcy, a debtor must repay all secured creditors and priority debts in full and must repay a portion of the amount owed to unsecured creditors. "Secured debt" is a debt obligation backed by collateral such as a car or real property; "priority debt" includes child support payments and back taxes; and "unsecured debt" are those obligations that are not backed by collateral. Unsecured debt includes money owed on a credit card.

A Chapter 13 bankruptcy places a filer's debt into a repayment plan. A bankruptcy court will not approve a plan unless the arrangement requires that the debtor repay all priority and secured debt in full. The repayment plan must also require the debtor to repay unsecured creditors in an amount equal in value to the filer's nonexempt property. Nonexempt property includes any interest held in real property, business assets, and artwork. Once a Chapter 13 repayment plan begins, a trustee will disburse the monthly payment made by the debtor to the creditors each month.

http://bankruptcy.findlaw.com/bankruptcy/bankruptcy-chapter-13/chapter-13-faq.html
Customer: replied 2 years ago.

As an example for my own "research," suppose I had 35K in credit card debt, car is paid for, the 1st is $146K, and the 2nd is approximately $48K, house is worth $120-135K. What would I be looking at as far as which debt MUST be repaid?

 

Approximately how much would a monthly plan be (using average trustee and attorney fees)? Are all plans for 5 years?

 

Would an attorney negotiate balances for credit card repayment amounts?

Expert:  Roger replied 2 years ago.
You would owe the entire $146k for the mortgage.

The amount of credit card debt would depend on the value of your non-exempt property. Usually, you have to pay the majority of the debt back.

Plans are 3-5 years, but payments can extend much father - 20 years or more on a mortgage.

I can't tell you how much a plan would be, etc. as there are too many factors, assets, exemptions, etc. to cover here. You should sit down with a local bankruptcy attorney to determine what you can do.
Roger, Attorney
Category: Bankruptcy Law
Satisfied Customers: 26346
Experience: BV Rated by Martindale-Hubbell; SuperLawyer rating by West
Roger and other Bankruptcy Law Specialists are ready to help you
Customer: replied 2 years ago.
How will my little 401K be affected by filing chapter 7 or 13?
Expert:  Roger replied 2 years ago.
Generally, any retirement accounts are not effected by bankruptcy. Here's an article that explains this: http://www.bankruptcylawnetwork.com/will-my-retirement-account-be-taken-in-bankruptcy/

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