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Barrister
Barrister, Attorney
Category: Legal
Satisfied Customers: 34305
Experience:  16 yrs practice, Civil, Criminal, Domestic, Realtor, Landlord 26 yrs
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A friend filed for Chapter 13. He had a first loan of $250K

Customer Question

A friend filed for Chapter 13. He had a first loan of $250K and a line of equity credit loan of $133K. It was listed by Auction.com for $250K. Appraisal was not done when he filed for 13. His opinion was asked by his lawyer as to how much she think the value of the property was and he said about $300K. If it can be proven that the value at that time was just $250K, can he be forgiven for the second loan?. He is ending the five year payment period in two months. What can he do >
JA: What state are you in? And has anything been officially filed?
Customer: California. Yes chapter 13 was filed and about to finish the five year payment period.
JA: Has anything been filed or reported?
Customer: Yes the chpate 13 was filed in January 2012. He is just realizing about the possible mistake.
JA: Anything else you want the lawyer to know before I connect you?
Customer: I dont know what needed to tell the lawyer or ask the lawyer.
Submitted: 2 months ago.
Category: Legal
Expert:  Barrister replied 2 months ago.

Hello and welcome! My name is ***** ***** I am a licensed attorney who will try my very best to help with your situation or get you to someone who can. There may be a slight delay in my responses as I research statutes or ordinances and type out an answer or reply, but rest assured, I am working on your question.

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Were the first mortgage and the equity line both included in the bankruptcy case along with any other debts?

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If not, why not?

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Was the equity line used to purchase the property initially?

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Have the payments he has been making been based on the total amount of his debts including the equity loan?

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thanks

Barrister

Customer: replied 2 months ago.
both were included in the bankruptcy case along with other debts.No, the equity line was not used to purchase the propertyYes, the payments he has been making been based on the total amount of debts including the equity loan
Expert:  Barrister replied 2 months ago.

Ok , a CH 13 is a bankruptcy where the judge and the trustee come up with a repayment plan where they reduce or eliminate some debts and then set up a plan over normally 3 or 5 years to pay off those reduced debts. So it wouldn't matter what the person estimated the value of the house to be... The BK repayment plan is based on the actual debts of the BK estate, not the estimated ones. And the BK trustee would sell the house, if it was sold, at public auction to the highest bidder.

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So the bot***** *****ne is that friend's estimated value of the property wouldn't have anything to do with the ending payment plan..

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thanks

Barrister

Customer: replied 2 months ago.
isnt it that on a 13, if the combined loan is more than the value of the property, the equity line loan w can be forgiven just like credit cards.
Customer: replied 2 months ago.
I dont have the specific details or exact figures. I can get that later. but just asking general question as the second loan being sort of unsecured and can be written off just like credit cards if the loan is more than the value of the property. On 2012 the value of the property was lesser than the loan.
Customer: replied 2 months ago.
there was a $10k credit card that was "forgiven". Isnt it that the 2nd trust deed/or equity line loan could be forgiven too because the property was underwater?
Expert:  Barrister replied 2 months ago.

isnt it that on a 13, if the combined loan is more than the value of the property, the equity line loan w can be forgiven just like credit cards.

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That is essentially what happens.. If you owed $350K on a house that is worth $250, the trustee and the BK judge reduce that amount down to something that fits within your income and payment abilities. But it is normally only in a CH 7 BK that debts are entirely forgiven, they are normally just reduced in a CH 13 and then paid off over 3 or 5 years.

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The credit card was likely forgiven because the creditor didn't think that was enough to bother with and getting a minimal payment per month for 5 years and would rather just write it off on their taxes as a loss immediately.

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thanks

Barrister

Customer: replied 2 months ago.
After this 5 year period, I will still continue paying the two loans. The only thing I am paying on the chapter 13 are my arrears which amounted to $49K. My mortgages will still continue.
Customer: replied 2 months ago.
those arrears are the months I was delinquent and several years of unpaid property taxes which the bank paid for me.
Expert:  Barrister replied 2 months ago.

Then only the arrearages were included in the BK, not the mortgage and equity line. You would have had to actually include those amounts in order for them to be negotiated and reduced.

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But at this point, almost 5 years down the road after agreeing to the repayment plan, you are pretty much stuck now. The time to negotiate would have been 5 years ago prior to agreeing to the repayment plan.

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thanks

Barrister

Customer: replied 2 months ago.
Thanks
Expert:  Barrister replied 2 months ago.

You are very welcome. Happy to help any time, even though the news isn't great...

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I am very sorry that I don’t have better news, but please understand that I do have an ethical and professional obligation to provide customers with legally correct answers based on my knowledge and experience, even when I know the answer doesn’t make the customer happy...

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If you feel your original question and any related follow ups have been answered, I would very much appreciate a positive rating on the answer I have provided as that is the only way I receive credit for my work. If you have a new question the JustAnswer folks require that you start a new question page, but you can request me by putting "For Barrister" in the caption and they will get it to me.

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thanks much

Barrister