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JoeLawyer
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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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Im going to try to have the second stripped on my bankruptcy.

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I'm going to try to have the second stripped on my bankruptcy. I'm also going to try to have my first loan remodifed through making home affordable program. Do you have a suggestion which one I should do first; or if I should do them at the same time.
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 1 year ago.
Hello.

I have found that it doesn't matter a whole lot which order you do those things in, though there are some differences:

If you decide to file Chapter 13 first (not Chapter 7 - you can't strip a junior mortgage in Chapter 7) and strip the second mortgage, then you can begin the modification process on the home during the Chapter 13 case (which lasts from 3 to 5 years). Since you are trying to modify during a bankruptcy case, you may have access to special programs that resulted from the lawsuit settlement that was entered in February 2012 and approved by the Court in April 2012 IF you are modifying with one of the "big 5" lenders who were defendants in that lawsuit (Citi, GMAC, JPMorgan Chase, Wells Fargo, or Bank of America). This lawsuit was called the Homeowners in Bankruptcy Relief Plan. Essentially, on February 9, 2012, the U.S. Attorney General announced that it and 49 states had reached a settlement with the nation's 5 largest mortgage servicers to resolve mortgage servicing, foreclosure, and bankruptcy abuses allegedly perpetrated by those servicers. On April 5, 2012, the settlement was approved by the U.S. District Court for D.C. The banks are required to spend at least $17 billion on various forms of relief for homeowners. Homeowners may be eligible for modification, forbearance or forgiveness of principal, short sale, waiver of deficiency balance, and other relief.

 

So, if you're dealing with one of the mortgage servicers below, after your bankruptcy is filed you can call the corresponding phone number to try to get something worked out:

Bank of America(NNN) NNN-NNNN/p>

Chase(NNN) NNN-NNNN/p>

Citi(NNN) NNN-NNNN/p>

Ally/GMAC(NNN) NNN-NNNN/p>

Wells Fargo(NNN) NNN-NNNN/p>

 

See also http://nationalmortgagesettlement.com/

 

and https://www.mortgageoversight.com/

 

and http://www.justice.gov/ust/eo/public_affairs/consumer_info/nms/

 

Believe it or not, this does seem to be working. GMAC contacted me a few weeks ago (THEY contacted ME) and asked to reduce a Chapter 13 client's second mortgage balance from $94,000 to $67,000 principal and reduce the interest rate from 9.X% to 3.X% in a NON-strippable situation. I said "Uh... where do we sign?" We signed the "Non-HAMP Mortgage Modification" form they faxed me, and I filed a Motion to XXXXX with the court, seeking court approval of the agreement (which we got).

 

However, a drawback of filing the bankruptcy before modifying the mortgage is that your Chapter 13 Plan payment amount may go up. The Plan payment is based on how much you can afford, so you put in your take-home income from ALL sources (Schedule I) and reasonable monthly expenses (Schedule J), then your Plan payment is whatever the difference is (called your "disposable income"). So, if your take-home income is $3,000/mo and your monthly expenses are $2,500/mo, then your Plan payment will be $500/month.

 

So, let's say when you file your case you leave your second mortgage off of your expenses since you intend to strip it, and let's say your first mortgage is $450/month, and it is on your expense list since you have to keep the first mortgage to keep the home. Let's also say your disposable income is $500/mo, so your Plan payment is $500/month. If you modify the first mortgage after the case is filed, then let's say the first mortgage payments drops to $300/month as a result of the modification (a $150 drop from the original mortgage payment amount). Now, your disposable income will go up by $150 since your first mortgage payment dropped by $150, so your Chapter 13 Plan payment will go up from $500/month to $650/month. But, if you had modified before the case was filed, you might have been able to use that extra $150/month to go buy better health insurance (or get some other allowable expense) and then filed the bankruptcy and still only had a $500/month Chapter 13 Plan payment (if that makes sense).

 

So, modifying after bankruptcy may allow you to have access to much better modification programs, but modifying before lets the dust settle so you can better predict and control how much your Chapter 13 Plan payment will be.

 

When all the factors are weighed in, most of my clients file the bankruptcy first and then do the modification and let the chips fall where they may as far as the Chapter 13 Plan payment amount is concerned, but certainly both ways have advantages and disadvantages so you need to decide what works best for you.

 

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. Funds I receive from JustAnswer.com are gratuities paid to me for taking the time to respond to questions, 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. JoeLawyer is an attorney but 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) JoeLawyer. 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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Customer: replied 1 year ago.
Thanks, XXXXX XXXXX already filed and have been in a ch. 13 for the last year. I owe more on the first than the comps say and then have the second on top of that. I want to have the second stripped and hope I don't have a problem with the attorney to do it. I guess I'll probably try to do both the mod and the strip at the same time. So, it appears if I do the strip first, then I may appear as if I have more money to pay on the first...so it may be more difficult to get the modification. This is just a thought. However, I don't want to pay down on my house so much that I don't qualify for the strip either. (on a fifteen year loan, it goes down pretty quickly.) Thanks for your input.
Expert:  JoeLawyer replied 1 year ago.
No problem. You can't pay down the value of your home to the point that you can't strip now since the value on the date the bankruptcy was filed - and the amount you owed on the date the bankruptcy was filed - are the amounts used for mortgage stripping (unless your jurisdiction does it differently than mine). I suppose theoretically you could try to strip based on changes that occur post-filing, though I have not see anyone try that.

So, you can go look at Schedule A and see what value you put on the home, and on Schedule D to see what amount you owed on the first mortgage, to ensure that your first mortgage liability exceeds your home value (for second mortgage stripping purposes).

Regarding "it appears if I do the strip first, then I may appear as if I have more money to pay on the first...so it may be more difficult to get the modification," I have not seen that really matter but it is certainly a good point. Since your Ch 13 is already filed then doing the modification first might be the best course of action; if you don't like the terms, or get denied, you can strip the second mortgage then go back and try to modify again.

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. Funds I receive from JustAnswer.com are gratuities paid to me for taking the time to respond to questions, 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. JoeLawyer is an attorney but 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) JoeLawyer. All rights reserved.
Customer: replied 1 year ago.
Thanks again!

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