Should I try to settle my 2nd, or walk, or what? (post bk-ch7)

[Moneypenny]

Do BoA Helocs from 2004 (i imagine mine was typical at the time, in CA) balloon all at once at the end?
I thought I could pay interest only indefinitely but now suspect not.

I think mine matures around 2016 or maybe 2014? Could it be just 10 years?
I don't have any records and also now overseas.

My situation: All debts, including this 2nd Heloc, discharged 2010 Ch7 Bankruptcy. 215K Current on 1st with other lender. 70K BoA second, half in installment payments (current) and the other 35K in interest only, possible due soon in one lump (???). House is worth about 200K or less, so underwater 1st, completely under on second.

We are in our house but I am somewhat willing to walk away if it means a new house is somehow possible years down the line-- but rent is about the same as these payments now, so no savings there. Only thing is this balloon payment which kind of ruins everything.

So I guess that if prop values dont rise BoA wont foreclose. What do you recommend I do?

Should I stop paying the second? And just continue to live in the house and keep fingers crossed?

Should I try to settle the second (but how will the pressure get ramped up? we'll never make it to the foreclosure wire since they won't foreclose on it)? Can you even settle a debt that's already discharged?

It's all very confusing to me and I would love some help.

[Cat Damiano]

HI Moneypenny,



If the debt was discharged in the bk and not reaffirmed then you are no longer liable for that debt personally regardless of the balloon.

[Moneypenny]

If the debt was discharged in the bk and not reaffirmed then you are no longer liable for that debt personally regardless of the balloon.

Yes, thanks, I know that. But, there is still a lien. So, if property values rise while I pay down the 1st, eventually it could get worth it to foreclose. Originally my plan was just to keep paying everything and go on as normal indefinitely, but I recently became aware of the possibility that my HELOC balloons all at once sometime soon, and I cannot pay.

Does anyone have a BoA HELOC from around 2004-- can you tell me what the typical terms were?

This would be good to know since I know I wont be able to pay.

Then the second question is what should I do... just stop paying the 2nd? In a few years interest and penalties will be like 110K or more probably, and even if I settled at 15%, came up with 16500 (like half my balloon) then the 93K I "got" in the settlement would be like 30K in taxes-- so I would be back with a new balloon, after also paying 1/2 of the original balloon.

[Moneypenny]

Hi,

I am really unsure. I did ch7 with no reaffirmation in 2010 and all my mortgages are discharged, while I continue to pay and live in our home.

FMV is about 190K. 1st is current at 215K (from my employer 40yr low interest), and 2nd is current with BoA 70K, with 35 in home equity loan and 35 in HELOC interest only, about to balloon for full payment of 35,000 in a couple years, I think.

I am not eligible for the new govt. settlement in my state (CA), or anything else probably.

When I try to contemplate settlement, here's the problem:

If I stop payment on the second, in some years penlties and intrest will make it 110K or more. If I settle for 15 percent, paid them 16.5K (which is half my balloon payment) then the 93,000 I "made" by settling gets hit with 30K tax-- so I would be back with a new balloon, while also paying half the original balloon. It doesn't seem like I can settle profitably. BoA I imagine doesn't settle with current accounts-- I would have to let the account accumulate interest and penalties first.

Should I just stop paying the 2nd anyway? It would be many years before it would be remotely tempting for them to foreclose on me, since I am under on the 1st. Should I walk? Should I stop paying 1st and second?

I need to be in a house or have hope of a future house. Property values are rising again in my area, too.

What do underwater people with discharged mortgages do with their practically unsecured 2nds?

[Moneypenny]

I just found out that I will not owe tax on settlement since the debt was discharged,
see Settling My 2nd Mortgage After Bankruptcy, Will I Owe Tax? | Matt Berkus - JDSupra

So, that changes my question of what to do a bit. Should I just stop paying my 2nd? I will have to go through the settlement process at some point, I guess. My savings will be a total $470 a month for a few years, plus the balloon payment, up until settlement, however that goes.

Or should I stop paying everything, and wait for foreclosure, then try to start over? Any advice?