Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy - Page 2 - Loan Modification Forum

ryma9295 · 03-06-2009, 10:41 AM

Received letter from Bank of America Tuesday and I called Recovery dept. and left message. They called me back today and we settled our HELOC for 50% less. The $ 132,000.00 HELOC is now $ 60,000 with a fixed 1% interest rate with payment $ 359.00 month which is very doable for us. If we get a lump sum later on can settle even less to close account out. A 1099 won't go out until the last payment is made. What a nightmare all this was but things are finally looking up and didn't have to declare bankruptcy. Thanks again for this site the past year it really helped me in dealing with our financial mess we got into.

jhn_plsn · 03-06-2009, 10:56 AM

That is great news. I am beside myself with encouragement that you supplied. I know our situations are most likely different but I am upside down on my first alone and my Heloc held by CW told me to pound sand. They said I had $10 extra per month, like that will fix a car! I will attempt with CW one more time to get below that 31% threashold but I don't think they will budge.

candice · 03-07-2009, 02:35 AM

are you saying that you should be able to file a chapter13 even though you filed a 7? What is the four years for. Can you lein strip if you filed an affermation on your second mortgage after you filed your chapter 7.

Moe Bedard · 03-07-2009, 10:14 AM

candice.................that would be a question for the attorney.

purenergy · 03-09-2009, 09:03 AM

This is a helpful discussion. I also understand that there is a Bill in the House of Representatives right now that may be related to all of this. Actually, I heard the bill passed.

Does anyone have, or know where to find, details on anything in the bill that may relate to lien stripping? (Preferably, in layman's terms!)

We got our 1st modified, but home value is "underwater" -- even w/just the first. All in my husband's name. He is filing BK, but I think he has too much debt to qualify for 13, so will do a 7. In your initial note, ***, I THINK this qualifies as "good faith"? If so, we just wait 2-4 years, and then he does a 13? Only difference is, with a 13, I understand you ARE paying something back for 3-5 years.

Moe Bedard · 03-09-2009, 11:32 AM

this is all that is known so far........so I am not sure if in order to do this, you would need to go through the new modification program......this is the part that needs clarification because this seems to just be able to be used if it is impossible to get the payment to the targeted 31% of gross income by using the other means available in the modification guidelines..........but you may want to consult with a bk attorney to get all of the ins and outs of the program and to ask those questions...............

Allowing Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options: The Obama administration will seek carefully crafted changes to bankruptcy provisions which will help to facilitate the goals of the Making Home Affordable program.

• How Judicial Modification Works:

Appropriately tailored bankruptcy legislation provides a mechanism for homeowners who are out of other options to file for bankruptcy and implement a responsible plan to pay the debts that they are able to pay. After borrowers have tried unsuccessfully to obtain affordable loan modifications from their lenders or servicers, in the appropriate circumstances, a bankruptcy judge should be able to reduce the outstanding principal balance of a primary residence home mortgage loan to current fair market value—just as is done with vacation homes or investment properties--when a person has no other options.

purenergy · 03-09-2009, 12:23 PM

This is how I understood it as well. However, the above does not indicate if this is ONLY for Ch. 13. I'm happy to read/research on my own if you know of a good website to check/follow.

thanks!

Moe Bedard · 03-09-2009, 12:41 PM

I had posted this above in this thread............this type of program is only able to be done in a Chapter 13..............a Chapter 7 doesn't offer payments............

Here is an article that was written when the cram down bill was originally put together.............

As with all legal questions, the answer is it depends. While the Supreme Court has ruled that you can not strip a second mortgage in a Chapter 7 proceeding, you still may be able to file a subsequent Chapter 13 case to achieve the goal.

So the issue really depends upon whether you can qualify for Chapter 13 relief and whether such plan is proposed in good faith.

This “double bankruptcy” is often referred to as a Chapter 20, which essentially is a Chapter 7 followed by a Chapter 13. Unfortunately, a Chapter 20 usually brings up issues of bad faith and Bankruptcy Courts highly scrutinize these filings. Lien stripping in the subsequent Chapter 13 case entails both qualifying for Chapter 13 relief and qualifying for lien stripping within that chapter.

To strip a second or junior mortgage on the personal residence in the subsequent Chapter 13 requires proving Chapter 13 eligibility (you have income and are within the debt limitations) and that the lien is totally unsecured (the value of the house is less than the first mortgage debt).

Most issues arise over whether the subsequent filing was done in good faith or not. Bad Faith frequently arises when individuals attempt to take advantage of both chapters where such advantages are not typically available in either chapter. For instance, filing a Chapter 7 to remove the unsecured debt for a later Chapter 13 solely in an attempt to reduce the Chapter 13 payments due to the lower debt load, is often viewed as bad faith.

On the other hand, reducing the unsecured debt in a prior chapter 7 case in an effort to qualify under the debt limits in the later Chapter 13 case, thus saving the fees, costs, and requirements in avoiding a Chapter 11 case, is generally considered not bad faith. Its a very fine line, but very important distinction between reducing monthly payments and reducing debt to qualify.

By the same token, the sudden drop in real estate values after the filing of a chapter 7(wherein one would not have qualified for lien stripping with previous values), which makes lien stripping a possibility now, would also be considered in good faith.

So what then gets paid in the subsequent Chapter 13 since all debt was previously discharged? Courts continue to struggle with this dilemma in Chapter 20 cases. On the one hand, there is no longer any unsecured debt due to the previous discharge under 11 USC 524. So technically, when the Chapter 13 is filed, the only debts that might remain are secured debts, taxes, student loans, non-dischargeable debt, other priority debt, and post chapter 7 debt. But assuming none of this other debt remains and the only purpose of the Chapter 13 is to strip the lien, does anything get paid?

The majority of Courts are now holding that while the secured lien is now voided and the debtor no longer personally owes any of the debt, a new unsecured debt is still created. Even though the prior Chapter 7 discharged this debt as a personal liability of the debtor and it can not be collected against the debtor personally, it is an unsecured debt that can be collected against the Chapter 13 estate. As such, most Bankruptcy Courts are now allowing these unsecured claims to be paid over a 3 to 5 year plan, even though the debtor no longer personally owes it.

So what then happens on discharge? Since under the new bankruptcy laws, a chapter 13 will not receive any discharge if filed within 4 years of a chapter 7, does the debtor now personally owe a huge unsecured debt upon completion of their chapter 13? No, as previously stated, since the debt has already been discharged in the previous chapter 7, the debtor no longer personally owes the new unsecured debt, even though there will be no discharge of this new unsecured debt in the subsequent chapter 13 case.

Finally, there is also no Code provision that requires that a lien may be stripped only upon Chapter 13 discharge. In fact, the Code provisions that are used, 11 USC 506(d) and 11 USC 1322, each provide that the lien stripping is immediate, even if no discharge and even prior to completion of all chapter 13 payments. Moreover, since the new Bankruptcy Laws under 11 USC 348 and 11 USC 349 provide remedies in the event of dismissal or conversion, new arguments can be made for immediate recording of the avoided lien.

In short, a prior chapter 7 should not be an obstacle for a subsequent chapter 13 that is filed to strip a junior mortgage, provided the requirements for lien stripping exists and there is no bad faith in that chapter 13 filing. Always check with an experienced Bankruptcy Attorney if you think you might qualify for this relief.

LenderNoHelp · 03-10-2009, 01:17 PM

***,

As of March 9, my mortgage with CW is under review for loan mod. At the same time, my second with SPS has called me telling me if I don't cure my account by March 21, they will seek further legal action. I did tell SPS I am currently working with CW on the Mod Program by the President and hoping CW will contact them for a settlement. If not I will file BK, to strip the 2nd.
Can SPS move forward to foreclose even though I am in the modifcation phase for review with CW? Should I be paying the second? I'm getting confused...

Moe Bedard · 03-10-2009, 01:23 PM

you would have to ask a foreclosure attorney in your state that question.

candice · 03-10-2009, 01:25 PM

I do know that if you file chapter 13 and put on hold but tell the bank that you are going to file chapter 13 and give them the attorneys name they can't forclose. Is your house upside down. Usually they won't foreclose if they are the second because they would have topay off the first than proceed. This would be spending good money aftet bad money. Do you see what I mean?

LenderNoHelp · 03-10-2009, 03:24 PM

Yes, my house is uderwater. I have my second free consult with BK attorney tomorrow. First, attorney says he can wipe out 2nd mortgage completely through Ch. 13 without repaying. (I still don't believe that!) I would only have to worry about paying on the credit cards. So, I will get a second opinion...

candice · 03-10-2009, 05:54 PM

Bill passed HR1106 only the house still has to be passed by the Senate. This would allow Bankrupsy attorneys to strip loans down to appraised value of home. I hope it passes. From what I have been told by my attorney you can in Chapter 13 lean strip. With this bill you will diffently be able to lean strip without any say so from the lenders

snapple candy · 03-10-2009, 08:15 PM

***,
If I understand it right, the cram down bill language allows for reduction in principal in Chapter 13 only?

Do you know the status of HR 1106 in Senate? Or are the still busy watering it down?

Moe Bedard · 03-10-2009, 09:37 PM

snapple candy,

this is the link to the bill in the senate............it says it was received yesterday.
Search Results - THOMAS (Library of Congress)

This is how it is worded in the fact sheet regarding the bk modifications and it would have to be in a Chapter 13 because Chapter 7 doesn't have debt payments.

Allowing Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options: The Obama administration will seek carefully crafted changes to bankruptcy provisions which will help to facilitate the goals of the Making Home Affordable program.

• How Judicial Modification Works:

Appropriately tailored bankruptcy legislation provides a mechanism for homeowners who are out of other options to file for bankruptcy and implement a responsible plan to pay the debts that they are able to pay. After borrowers have tried unsuccessfully to obtain affordable loan modifications from their lenders or servicers, in the appropriate circumstances, a bankruptcy judge should be able to reduce the outstanding principal balance of a primary residence home mortgage loan to current fair market value—just as is done with vacation homes or investment properties--when a person has no other options.

snapple candy · 03-11-2009, 08:52 AM

thanks ***,
i understand 7 wouldn't work but 11 may since it looks like there is a restructuring in 11, although mostly used for corporations and businesses. Unfortunately i went thru chapter 13, 2 years. I was never advised to consider stripping my 2nd back then which i probably might have been able to do in hindsight. in the end i fired that attorney for mismanaging my case. this is before the real deep plunge in home values. i was on the edge back then financially and these house payments are just leaving me deep in the whole since no decent employment to be found.
If I cannot seek relief, it appears this can be a heavy hammer for the other borrowers to get the lenders to behave and start compromising. I dont think BK judges will appreciate lenders acting in bad faith and maxing out their dockets when they could have negotiated a settlement.

candice · 03-11-2009, 11:34 AM

Good point. I think you are right!! I don't think the Judges are going to be happy with the Banks if they don't try to Modify these loans. Some banks are moditying to take advantage of the money they will receive from the Government for doing so. They are not reducing the principal and only a little interest rate reduction. This has been my exerience with Country Wide and HSBC. Can't you go back to court and file a chapter 13 even if you filed a 11 in the past. This is a different situation. With the falling home values I would think you could lean strip. We are concerned because my husband filed a chapter 7 two years ago. Our attorney never told us how we could reduce our mortgage. We did not even know this was an opption for us. Now they are trying to tell us that I could file a chapter13 but this would not protect him and they could come after him for the debt. We also accepted an affermation from our second to reduce the interest rate to get the payments down. At the advise of our attorney. I only wish I had knowen what I know now. If the Bill 1101 passes the senate we might be able to lean strip.

snapple candy · 03-11-2009, 12:51 PM

Candice,
I will be calling the BK trustees office to find out more as some of my sources tell me I can file again (I did a Cpt 13 not 7) and there should be no reason your husband cannot file for 13 even though he did a 7, 2 years ago (so I am told). Personally, I dont think these attorneys wanted to do the extra work it would take to go up a big lender whom had hoards of attorneys to fight. Most people in BK are there for a reason and dont have the extra bucks to shell out to pay for "extra" services from BK attorneys like this.Most do the minimum they have to for a flat fee.
It also depends on how agressive an attorney you get and how hard they are willing to work.I dont trust attorneys in general and seek out the advice of several, as well as do the research to make sure what I can and cant do.
I read in the paper the other day, BK judges can already strip 2nds in Chapter 13 although I do not know if that is in fact true. Some avenues to explore.

snapple candy · 03-11-2009, 01:55 PM

I found this on BK:
A debtor cannot obtain a discharge in a Chapter 7 case if the debtor obtained a discharge in (a) a Chapter 7 case filed within the past 8 years, or (b) a Chapter 13 case filed within the past 6 years. The time periods in either case are measured from the commencement dates of the respective cases. The dates of discharge have no bearing on the disqualification.

A debtor cannot obtain a discharge in a Chapter 13 case if the debtor obtained a discharge in (a) a Chapter 7 case filed within the past 4 years, or (b) a Chapter 13 case filed within the past 2 years. The time periods in either case are measured from the commencement dates of the respective cases. The dates of discharge have no bearing on the disqualification.

LenderNoHelp · 03-11-2009, 02:56 PM

Quote:

Originally Posted by candice

I do know that if you file chapter 13 and put on hold but tell the bank that you are going to file chapter 13 and give them the attorneys name they can't forclose. Is your house upside down. Usually they won't foreclose if they are the second because they would have topay off the first than proceed. This would be spending good money aftet bad money. Do you see what I mean?

Candice, so you are saying if I tell the 2nd I'm filing CH.13 they cannot proceed to foreclose? I met w/ the BK attorney today and said I just have to file before the trustee sale date. I'm trying to get a mod under the obama plan and hoping the 1st CW will contact the 2nd for a settlement. At the same time I'm tracking the other BK bill. It's all a waiting game but, not sure how long I can wait. I will be 3 months behind this month and 2nd says they are ready to start legal action. Does the 2nd have that much power? They are unsecured... I'm underwater!

snapple candy · 03-11-2009, 03:25 PM

Before BK is filed, it is up in the air what the lender can do legally. Once it is legally filed at BK Court, you will be under the protection of the automatic stay and they cannot do anything and would be a federal violation if they attempted to. The threat of BK doesnt stop anything although a letter to the lender referring them to your attorney for all future matters might cause them to pause. It is usually around the 90 day mark of delinquency they start threatening foreclosure. Just cause they say they are ready to start legal action, doesnt mean they will do it. A letter from your BK attorney might forstall this process. Hang in there.

LenderNoHelp · 03-11-2009, 04:12 PM

Thanks Snapple Candy! I feel a bit of relief knowing all our rights and options. I highly doubt my 2nd would foreclose since the 1st mortgage is underwater by more than 100k, plus both are purchase money loans and I live in CA!

Scooterino · 04-29-2009, 12:39 PM

I've read through this thread and am a little confused. Maybe someone can clear this up for me? We have a first mortgage of $233,000 and a second of $85,000. Our house has dropped in value to about $280,000. We are currently in a CH 13, but our attorney never mentioned this option to us. We're in arrears on both our first and second and face foreclosure unless HR 1106 passes. We've tried working with the mortgage lenders to modify the loans, but no luck (whole other story!). Would the 2nd mortgage cramdown potentially be something we would use through the Ch13. Obviously, we would have to modify the plan, but this might help us save the house.....

Moe Bedard · 04-29-2009, 07:07 PM

Scooterino,

this is about the cram down bill..........it can only be done in a Chapter 13...........and it looks like the part about reducing the principal might not pass...........but we are closely following the bill in this section of the forum.
You would need to discuss the lien stripping with your attorney.........

Scooterino · 04-30-2009, 02:23 PM

So is this 2nd lien stripping not an option now that HR 1106 has been defeated in the Senate? Or was this already part of the BK law?

03-06-2009, 10:41 AM	#26 (permalink)
ryma9295 Member Join Date: Jan 2008 Posts: 21 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy Received letter from Bank of America Tuesday and I called Recovery dept. and left message. They called me back today and we settled our HELOC for 50% less. The $ 132,000.00 HELOC is now $ 60,000 with a fixed 1% interest rate with payment $ 359.00 month which is very doable for us. If we get a lump sum later on can settle even less to close account out. A 1099 won't go out until the last payment is made. What a nightmare all this was but things are finally looking up and didn't have to declare bankruptcy. Thanks again for this site the past year it really helped me in dealing with our financial mess we got into.

03-06-2009, 10:56 AM	#27 (permalink)
jhn_plsn Senior Member Join Date: Apr 2008 Location: Riverside, Ca Posts: 136 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy That is great news. I am beside myself with encouragement that you supplied. I know our situations are most likely different but I am upside down on my first alone and my Heloc held by CW told me to pound sand. They said I had $10 extra per month, like that will fix a car! I will attempt with CW one more time to get below that 31% threashold but I don't think they will budge. __________________ *John, Upside down big time.* *1st modified again=USBank, 3% for 5yrs, 4.95 cap for the life of the loan(no principle write down but a stable solution)* *2nd(heloc)=BofA offered three month trial at 1/3 the payment. We'll see.*

03-07-2009, 02:35 AM	#28 (permalink)
candice Member Join Date: Mar 2009 Posts: 10 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy are you saying that you should be able to file a chapter13 even though you filed a 7? What is the four years for. Can you lein strip if you filed an affermation on your second mortgage after you filed your chapter 7.

03-07-2009, 10:14 AM	#29 (permalink)
Moe Bedard Founder Join Date: Aug 2007 Location: Southern California Posts: 16,887 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy candice.................that would be a question for the attorney. __________________ Moe Bedard Founder LoanSafe.org "America's #1 Home Loan Forum" LoanWorkout.org "America's # Loan Modification Blog" Get My FREE Loan Modification E-Book \| Please donate to LoanSafe.org \| Loan Modification Training For Attorneys \| Rate Your Mortgage Servicer The comments by me and the materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. Most of the information you find here is easily available on the internet. You should contact your attorney to obtain advice with respect to any particular issue or problem. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. Please Read our Privacy Policy and Legal Disclaimer Here.

03-09-2009, 09:03 AM	#30 (permalink)
purenergy Senior Member Join Date: Jul 2008 Location: Northern CA Posts: 63 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy This is a helpful discussion. I also understand that there is a Bill in the House of Representatives right now that may be related to all of this. Actually, I heard the bill passed. Does anyone have, or know where to find, details on anything in the bill that may relate to lien stripping? (Preferably, in layman's terms!) We got our 1st modified, but home value is "underwater" -- even w/just the first. All in my husband's name. He is filing BK, but I think he has too much debt to qualify for 13, so will do a 7. In your initial note, **, I THINK this qualifies as "good faith"? If so, we just wait 2-4 years, and then he does a 13? Only difference is, with a 13, I understand you ARE paying something back for 3-5 years. __________________ purenergy breathe* & practice yoga everyday to keep the mod blues away!

03-09-2009, 11:32 AM	#31 (permalink)
Moe Bedard Founder Join Date: Aug 2007 Location: Southern California Posts: 16,887 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy this is all that is known so far........so I am not sure if in order to do this, you would need to go through the new modification program......this is the part that needs clarification because this seems to just be able to be used if it is impossible to get the payment to the targeted 31% of gross income by using the other means available in the modification guidelines..........but you may want to consult with a bk attorney to get all of the ins and outs of the program and to ask those questions............... Allowing Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options: The Obama administration will seek carefully crafted changes to bankruptcy provisions which will help to facilitate the goals of the Making Home Affordable program. • How Judicial Modification Works: Appropriately tailored bankruptcy legislation provides a mechanism for homeowners who are out of other options to file for bankruptcy and implement a responsible plan to pay the debts that they are able to pay. After borrowers have tried unsuccessfully to obtain affordable loan modifications from their lenders or servicers, in the appropriate circumstances, a bankruptcy judge should be able to reduce the outstanding principal balance of a primary residence home mortgage loan to current fair market value—just as is done with vacation homes or investment properties--when a person has no other options. __________________ Moe Bedard Founder LoanSafe.org "America's #1 Home Loan Forum" LoanWorkout.org "America's # Loan Modification Blog" Get My FREE Loan Modification E-Book \| Please donate to LoanSafe.org \| Loan Modification Training For Attorneys \| Rate Your Mortgage Servicer The comments by me and the materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. Most of the information you find here is easily available on the internet. You should contact your attorney to obtain advice with respect to any particular issue or problem. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. Please Read our Privacy Policy and Legal Disclaimer Here.

03-09-2009, 12:23 PM	#32 (permalink)
purenergy Senior Member Join Date: Jul 2008 Location: Northern CA Posts: 63 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy This is how I understood it as well. However, the above does not indicate if this is ONLY for Ch. 13. I'm happy to read/research on my own if you know of a good website to check/follow. thanks! __________________ purenergy breathe & practice yoga everyday to keep the mod blues away!

03-09-2009, 12:41 PM	#33 (permalink)
Moe Bedard Founder Join Date: Aug 2007 Location: Southern California Posts: 16,887 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy I had posted this above in this thread............this type of program is only able to be done in a Chapter 13..............a Chapter 7 doesn't offer payments............ Here is an article that was written when the cram down bill was originally put together............. As with all legal questions, the answer is it depends. While the Supreme Court has ruled that you can not strip a second mortgage in a Chapter 7 proceeding, you still may be able to file a subsequent Chapter 13 case to achieve the goal. So the issue really depends upon whether you can qualify for Chapter 13 relief and whether such plan is proposed in good faith. This “double bankruptcy” is often referred to as a Chapter 20, which essentially is a Chapter 7 followed by a Chapter 13. Unfortunately, a Chapter 20 usually brings up issues of bad faith and Bankruptcy Courts highly scrutinize these filings. Lien stripping in the subsequent Chapter 13 case entails both qualifying for Chapter 13 relief and qualifying for lien stripping within that chapter. To strip a second or junior mortgage on the personal residence in the subsequent Chapter 13 requires proving Chapter 13 eligibility (you have income and are within the debt limitations) and that the lien is totally unsecured (the value of the house is less than the first mortgage debt). Most issues arise over whether the subsequent filing was done in good faith or not. Bad Faith frequently arises when individuals attempt to take advantage of both chapters where such advantages are not typically available in either chapter. For instance, filing a Chapter 7 to remove the unsecured debt for a later Chapter 13 solely in an attempt to reduce the Chapter 13 payments due to the lower debt load, is often viewed as bad faith. On the other hand, reducing the unsecured debt in a prior chapter 7 case in an effort to qualify under the debt limits in the later Chapter 13 case, thus saving the fees, costs, and requirements in avoiding a Chapter 11 case, is generally considered not bad faith. Its a very fine line, but very important distinction between reducing monthly payments and reducing debt to qualify. By the same token, the sudden drop in real estate values after the filing of a chapter 7(wherein one would not have qualified for lien stripping with previous values), which makes lien stripping a possibility now, would also be considered in good faith. So what then gets paid in the subsequent Chapter 13 since all debt was previously discharged? Courts continue to struggle with this dilemma in Chapter 20 cases. On the one hand, there is no longer any unsecured debt due to the previous discharge under 11 USC 524. So technically, when the Chapter 13 is filed, the only debts that might remain are secured debts, taxes, student loans, non-dischargeable debt, other priority debt, and post chapter 7 debt. But assuming none of this other debt remains and the only purpose of the Chapter 13 is to strip the lien, does anything get paid? The majority of Courts are now holding that while the secured lien is now voided and the debtor no longer personally owes any of the debt, a new unsecured debt is still created. Even though the prior Chapter 7 discharged this debt as a personal liability of the debtor and it can not be collected against the debtor personally, it is an unsecured debt that can be collected against the Chapter 13 estate. As such, most Bankruptcy Courts are now allowing these unsecured claims to be paid over a 3 to 5 year plan, even though the debtor no longer personally owes it. So what then happens on discharge? Since under the new bankruptcy laws, a chapter 13 will not receive any discharge if filed within 4 years of a chapter 7, does the debtor now personally owe a huge unsecured debt upon completion of their chapter 13? No, as previously stated, since the debt has already been discharged in the previous chapter 7, the debtor no longer personally owes the new unsecured debt, even though there will be no discharge of this new unsecured debt in the subsequent chapter 13 case. Finally, there is also no Code provision that requires that a lien may be stripped only upon Chapter 13 discharge. In fact, the Code provisions that are used, 11 USC 506(d) and 11 USC 1322, each provide that the lien stripping is immediate, even if no discharge and even prior to completion of all chapter 13 payments. Moreover, since the new Bankruptcy Laws under 11 USC 348 and 11 USC 349 provide remedies in the event of dismissal or conversion, new arguments can be made for immediate recording of the avoided lien. In short, a prior chapter 7 should not be an obstacle for a subsequent chapter 13 that is filed to strip a junior mortgage, provided the requirements for lien stripping exists and there is no bad faith in that chapter 13 filing. Always check with an experienced Bankruptcy Attorney if you think you might qualify for this relief. __________________ Moe Bedard Founder LoanSafe.org "America's #1 Home Loan Forum" LoanWorkout.org "America's # Loan Modification Blog" Get My FREE Loan Modification E-Book \| Please donate to LoanSafe.org \| Loan Modification Training For Attorneys \| Rate Your Mortgage Servicer The comments by me and the materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. Most of the information you find here is easily available on the internet. You should contact your attorney to obtain advice with respect to any particular issue or problem. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. Please Read our Privacy Policy and Legal Disclaimer Here.

03-10-2009, 01:17 PM	#34 (permalink)
LenderNoHelp Senior Member Join Date: Dec 2008 Posts: 40 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy ***, As of March 9, my mortgage with CW is under review for loan mod. At the same time, my second with SPS has called me telling me if I don't cure my account by March 21, they will seek further legal action. I did tell SPS I am currently working with CW on the Mod Program by the President and hoping CW will contact them for a settlement. If not I will file BK, to strip the 2nd. Can SPS move forward to foreclose even though I am in the modifcation phase for review with CW? Should I be paying the second? I'm getting confused...

03-10-2009, 01:23 PM	#35 (permalink)
Moe Bedard Founder Join Date: Aug 2007 Location: Southern California Posts: 16,887 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy you would have to ask a foreclosure attorney in your state that question. __________________ Moe Bedard Founder LoanSafe.org "America's #1 Home Loan Forum" LoanWorkout.org "America's # Loan Modification Blog" Get My FREE Loan Modification E-Book \| Please donate to LoanSafe.org \| Loan Modification Training For Attorneys \| Rate Your Mortgage Servicer The comments by me and the materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. Most of the information you find here is easily available on the internet. You should contact your attorney to obtain advice with respect to any particular issue or problem. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. Please Read our Privacy Policy and Legal Disclaimer Here.

03-10-2009, 01:25 PM	#36 (permalink)
candice Member Join Date: Mar 2009 Posts: 10 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy I do know that if you file chapter 13 and put on hold but tell the bank that you are going to file chapter 13 and give them the attorneys name they can't forclose. Is your house upside down. Usually they won't foreclose if they are the second because they would have topay off the first than proceed. This would be spending good money aftet bad money. Do you see what I mean?

03-10-2009, 03:24 PM	#37 (permalink)
LenderNoHelp Senior Member Join Date: Dec 2008 Posts: 40 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy Yes, my house is uderwater. I have my second free consult with BK attorney tomorrow. First, attorney says he can wipe out 2nd mortgage completely through Ch. 13 without repaying. (I still don't believe that!) I would only have to worry about paying on the credit cards. So, I will get a second opinion...

03-10-2009, 05:54 PM	#38 (permalink)
candice Member Join Date: Mar 2009 Posts: 10 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy Bill passed HR1106 only the house still has to be passed by the Senate. This would allow Bankrupsy attorneys to strip loans down to appraised value of home. I hope it passes. From what I have been told by my attorney you can in Chapter 13 lean strip. With this bill you will diffently be able to lean strip without any say so from the lenders

03-10-2009, 08:15 PM	#39 (permalink)
snapple candy Senior Member Join Date: Feb 2009 Posts: 1,307 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy ***, If I understand it right, the cram down bill language allows for reduction in principal in Chapter 13 only? Do you know the status of HR 1106 in Senate? Or are the still busy watering it down?

03-10-2009, 09:37 PM	#40 (permalink)
Moe Bedard Founder Join Date: Aug 2007 Location: Southern California Posts: 16,887 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy snapple candy, this is the link to the bill in the senate............it says it was received yesterday. Search Results - THOMAS (Library of Congress) This is how it is worded in the fact sheet regarding the bk modifications and it would have to be in a Chapter 13 because Chapter 7 doesn't have debt payments. Allowing Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options: The Obama administration will seek carefully crafted changes to bankruptcy provisions which will help to facilitate the goals of the Making Home Affordable program. • How Judicial Modification Works: Appropriately tailored bankruptcy legislation provides a mechanism for homeowners who are out of other options to file for bankruptcy and implement a responsible plan to pay the debts that they are able to pay. After borrowers have tried unsuccessfully to obtain affordable loan modifications from their lenders or servicers, in the appropriate circumstances, a bankruptcy judge should be able to reduce the outstanding principal balance of a primary residence home mortgage loan to current fair market value—just as is done with vacation homes or investment properties--when a person has no other options. __________________ Moe Bedard Founder LoanSafe.org "America's #1 Home Loan Forum" LoanWorkout.org "America's # Loan Modification Blog" Get My FREE Loan Modification E-Book \| Please donate to LoanSafe.org \| Loan Modification Training For Attorneys \| Rate Your Mortgage Servicer The comments by me and the materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. Most of the information you find here is easily available on the internet. You should contact your attorney to obtain advice with respect to any particular issue or problem. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. Please Read our Privacy Policy and Legal Disclaimer Here.

03-11-2009, 08:52 AM	#41 (permalink)
snapple candy Senior Member Join Date: Feb 2009 Posts: 1,307 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy thanks ***, i understand 7 wouldn't work but 11 may since it looks like there is a restructuring in 11, although mostly used for corporations and businesses. Unfortunately i went thru chapter 13, 2 years. I was never advised to consider stripping my 2nd back then which i probably might have been able to do in hindsight. in the end i fired that attorney for mismanaging my case. this is before the real deep plunge in home values. i was on the edge back then financially and these house payments are just leaving me deep in the whole since no decent employment to be found. If I cannot seek relief, it appears this can be a heavy hammer for the other borrowers to get the lenders to behave and start compromising. I dont think BK judges will appreciate lenders acting in bad faith and maxing out their dockets when they could have negotiated a settlement.

03-11-2009, 11:34 AM	#42 (permalink)
candice Member Join Date: Mar 2009 Posts: 10 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy Good point. I think you are right!! I don't think the Judges are going to be happy with the Banks if they don't try to Modify these loans. Some banks are moditying to take advantage of the money they will receive from the Government for doing so. They are not reducing the principal and only a little interest rate reduction. This has been my exerience with Country Wide and HSBC. Can't you go back to court and file a chapter 13 even if you filed a 11 in the past. This is a different situation. With the falling home values I would think you could lean strip. We are concerned because my husband filed a chapter 7 two years ago. Our attorney never told us how we could reduce our mortgage. We did not even know this was an opption for us. Now they are trying to tell us that I could file a chapter13 but this would not protect him and they could come after him for the debt. We also accepted an affermation from our second to reduce the interest rate to get the payments down. At the advise of our attorney. I only wish I had knowen what I know now. If the Bill 1101 passes the senate we might be able to lean strip.

03-11-2009, 12:51 PM	#43 (permalink)
snapple candy Senior Member Join Date: Feb 2009 Posts: 1,307 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy Candice, I will be calling the BK trustees office to find out more as some of my sources tell me I can file again (I did a Cpt 13 not 7) and there should be no reason your husband cannot file for 13 even though he did a 7, 2 years ago (so I am told). Personally, I dont think these attorneys wanted to do the extra work it would take to go up a big lender whom had hoards of attorneys to fight. Most people in BK are there for a reason and dont have the extra bucks to shell out to pay for "extra" services from BK attorneys like this.Most do the minimum they have to for a flat fee. It also depends on how agressive an attorney you get and how hard they are willing to work.I dont trust attorneys in general and seek out the advice of several, as well as do the research to make sure what I can and cant do. I read in the paper the other day, BK judges can already strip 2nds in Chapter 13 although I do not know if that is in fact true. Some avenues to explore.

03-11-2009, 01:55 PM	#44 (permalink)
snapple candy Senior Member Join Date: Feb 2009 Posts: 1,307 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy I found this on BK: A debtor cannot obtain a discharge in a Chapter 7 case if the debtor obtained a discharge in (a) a Chapter 7 case filed within the past 8 years, or (b) a Chapter 13 case filed within the past 6 years. The time periods in either case are measured from the commencement dates of the respective cases. The dates of discharge have no bearing on the disqualification. A debtor cannot obtain a discharge in a Chapter 13 case if the debtor obtained a discharge in (a) a Chapter 7 case filed within the past 4 years, or (b) a Chapter 13 case filed within the past 2 years. The time periods in either case are measured from the commencement dates of the respective cases. The dates of discharge have no bearing on the disqualification.

03-11-2009, 03:25 PM	#46 (permalink)
snapple candy Senior Member Join Date: Feb 2009 Posts: 1,307 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy Before BK is filed, it is up in the air what the lender can do legally. Once it is legally filed at BK Court, you will be under the protection of the automatic stay and they cannot do anything and would be a federal violation if they attempted to. The threat of BK doesnt stop anything although a letter to the lender referring them to your attorney for all future matters might cause them to pause. It is usually around the 90 day mark of delinquency they start threatening foreclosure. Just cause they say they are ready to start legal action, doesnt mean they will do it. A letter from your BK attorney might forstall this process. Hang in there.

03-11-2009, 04:12 PM	#47 (permalink)
LenderNoHelp Senior Member Join Date: Dec 2008 Posts: 40 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy Thanks Snapple Candy! I feel a bit of relief knowing all our rights and options. I highly doubt my 2nd would foreclose since the 1st mortgage is underwater by more than 100k, plus both are purchase money loans and I live in CA!

04-29-2009, 12:39 PM	#48 (permalink)
Scooterino Member Join Date: Apr 2009 Posts: 11 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy I've read through this thread and am a little confused. Maybe someone can clear this up for me? We have a first mortgage of $233,000 and a second of $85,000. Our house has dropped in value to about $280,000. We are currently in a CH 13, but our attorney never mentioned this option to us. We're in arrears on both our first and second and face foreclosure unless HR 1106 passes. We've tried working with the mortgage lenders to modify the loans, but no luck (whole other story!). Would the 2nd mortgage cramdown potentially be something we would use through the Ch13. Obviously, we would have to modify the plan, but this might help us save the house.....

04-29-2009, 07:07 PM	#49 (permalink)
Moe Bedard Founder Join Date: Aug 2007 Location: Southern California Posts: 16,887 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy Scooterino, this is about the cram down bill..........it can only be done in a Chapter 13...........and it looks like the part about reducing the principal might not pass...........but we are closely following the bill in this section of the forum. You would need to discuss the lien stripping with your attorney......... __________________ Moe Bedard Founder LoanSafe.org "America's #1 Home Loan Forum" LoanWorkout.org "America's # Loan Modification Blog" Get My FREE Loan Modification E-Book \| Please donate to LoanSafe.org \| Loan Modification Training For Attorneys \| Rate Your Mortgage Servicer The comments by me and the materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. Most of the information you find here is easily available on the internet. You should contact your attorney to obtain advice with respect to any particular issue or problem. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. Please Read our Privacy Policy and Legal Disclaimer Here.

04-30-2009, 02:23 PM	#50 (permalink)
Scooterino Member Join Date: Apr 2009 Posts: 11 Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0	Re: Discussion: Principle Reductions: Wipe Out Your 2nd Mortgage With Bankruptcy So is this 2nd lien stripping not an option now that HR 1106 has been defeated in the Senate? Or was this already part of the BK law?

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