Attorney & Law Firm Directory Verified US Attorneys
Sign In Free Sign Up

Second mortgage has not been paid in 5 years and I want to file Bankruptcy Chapter 13.

· · 0 views
I have not paid my second mortgage in years, they have not foreclosed and the lender sold the debt 3 years ago.
How do I determine what monthly amount I owe to them for a Schedule J expense. Would I add up all the missing payments in arrears for the past 5 years and that would go into my budget? Or would I just put in the original monthly amount that I was paying 5 years ago on my schedule J? Or do I not put in an amount at all for that debt?

6 Attorney Answers

Best Answer
You have a complex situation that requires the assistance of counsel. That being said, use the last know amount that you were paying on Schedule J. Multiply that by 60 for the amount of arrears on the B-22, list the estimated full balance on Schedule D. When putting your plan together, make sure you account for the payment of the arrears in the correct place. As I indicated, this is a complicated process and in the Central District of California, Chapter 13 cases get dismissed quickly if not done correctly.
Best Answer
Prior to last week, this may have been a good idea. This week, maybe not so much. In the case of Bank of America v. Caulkett, Bank of America asserted that junior liens should not be treated as unsecured loans, because the bankruptcy code only “strips off” claims from property that are disallowed and because the Supreme Court’s ruling in Dewsnup v. Timm, disallowing “stripping down” of primary liens to the value of the underlying property, should extend to this case. The defendants argued that second liens should be treated as unsecured, and hence disallowed. Bank of America won big time. So, to own your home, you will have to pay, in full all interest, late fees, etc. If you figure those out, that is what you will likely have to pay to get that lien released. I would strongly suggest that you consult with a local attorney (perhaps selected from the AVVO website resources) with experience in this area of law, to offer a free initial consultation and perhaps assist with the process. If this information was helpful to you, even if you do not like or agree with the advice, please let me know by clicking on the “Helpful” or “Best Answer” button. Good luck!
I may be wrong, because I have not read the recent Supreme Court decision, but my understanding is that the Caulkett decision only deals with an attempt to strip of a lien in a chapter 7 cases. The 11th Circuit Court of Appeals (FL, GA & AL) was one of the few, if not the only circuit that had ruled that a wholly unsecured second mortgage could be stripped from the property in a chapter 7 case. The Caulkett decion ended that practice in the 11th Circuit.
I believe that option is still available in a chapter 13 case, but if there is one dollar of equity above the amount owed to the first mortgage holder, then lien cannot be stripped in a chapter 13 either.
Chapter 13s can be very complex, as a result, almost 99% of pro se chapter 13 debtors fail. Don't make that mistake. Make sure that you are making the right decision by making an appointment with an experienced bankruptcy attorney that handles both chapter 7 and chapter 13 cases. Use the Avvo "Find a Lawyer" link to start your search.
As to your question about how much to list the amount of the debt owed on the 2nd mortgage, most of the missed payments generally consisted of interest. Thus, the balance is much larger than it was prior to the default several years ago. Sometimes a credit report will show an estimate of the current payoff.
First thing's first... find out who holds the debt now. Since you know the debt was sold three years ago you may know who holds the debt now. If not, try searching the records of the County Recorder in the county where the real property is situated; look for an Assignment of Deed of Trust. You may also be able to determine this information by reviewing your credit report. Once you know who holds your "mortgage" you should contact the creditor. You can contact the creditor directly or use a device known as a Qualified Written Request to get the information you need.
Once you have this information, then you can begin your bankruptcy. In a Chapter 13 bankruptcy, you cure the pre-petition arrearage through the Chapter 13 Plan. Your budget (Schedules I and J) will include your regular post-petition monthly payments. Your Form 22 will include the pre-petition arrearage on the "mortgage".
Chapter 13 bankruptcy can be a complicated legal process and you should consult a knowledgeable bankruptcy attorney in your area before filing a Chapter 13 bankruptcy (or any bankruptcy petition).
In Schedule J, you need to list the monthly amount you should be paying on the second mortgage per your contract as of the time of the bankruptcy filing. This is a separate issue from the arrears you owe (which will be dealt with in the Chapter 13 Plan) and may be different from the monthly amount you were paying 5 years ago due to a change in the interest rate, escrow or other reasons. The simplest way to find out what your monthly payment currently is is to contact the current lender or servicer of the second mortgage and ask them for that information.
In California, you can strip off a second unsecured lien from your primary residence. This is called a "lien strip" and it requires that the face value of the first mortgage is greater than the value of the property. In other words, there cannot be a single penny of equity in the property after the application of the first mortgage.
For example, say you have a first mortgage of $100K, and a second of $50K, but the property is only worth $90K. That means you are "underwater " on the property and there is zero equity (-$10K) in equity for the first mortgage. In that limited instance, and only in a chapter 13 case for your primary residence only, the second can be stripped off and discharged as an unsecured debt just like a credit card.
However, if the value of the property is $110K, then the $50K second attaches to that equity and you cannot strip off the lien.
You MUST get an appraisal of the property to establish the value. Not a broker price opinion or a drive by evaluation. It must be done by a licensed California real estate appraiser only. Once you have that number from the appraiser, you can figure out if this will work.
Also, you MUST get an attorney to help you with this. Lien strips are highly technical, and require specialized knowledge.
Feedback is important to all of the attorneys on Avvo as it is the only way we know whether our answers were effective in resolving your question. Please let us know if this answer was helpful in answering your question by hitting the “helpful” button. Thanks.
Disclaimer: The materials provided in this answer are informational only and should not be relied upon as legal advice. It is always best to seek the advice of an experienced attorney.

Sign in to answer this question.

Sign In or Sign Up as an Attorney