QUESTION
Can I lower the principle amount on my first mortgage by filing chapter 13 bankruptcy?
Asked on Nov 02nd, 2011 on Bankruptcy - California
More details to this question:
I have a first mortgage for $717,000 and a second mortgage for $102,000. My home is worth $517,000. I am current on the first after a loan modification, but I have not been paying the second and now I just received a summons from the servicer company. They are suing me for the balance. I can't afford to pay them, so is my only option to file bankruptcy so they don't levy my bank accounts? I am self employed so they can't garnish my wages, but I think they could levy. If I filed chapter 13, I think my second mortgage would go away, but what about the unsecured principle on my first?
14 ANSWERS
Bankruptcy Attorney serving Hampton, VA
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Haven Law Group, P.C.
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You should be able to completely strip the second mortgage since there is no equity to cover that mortgage. The first mortgage will not be affected.
Answered on Nov 04th, 2011 at 4:49 PM
Bankruptcy Attorney serving Myrtle Beach, SC
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Law Office of Margaret L. Evans, PC
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With a $200,000.00 difference between what its worth and the 1st mortgage, I'd SERIOUSLY consider giving up the home in a Chapter 13 so you can get a "fresh start" and a smaller, more affordable home. You may have to rent during the pendency of the bankruptcy, but you could save a substantial sum of money up for another home when then bankruptcy is over.
Answered on Nov 04th, 2011 at 2:45 PM
Bankruptcy & Debt Attorney serving Longmont, CO
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William Edward Zurinskas
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In Colorado chapter 13 bankruptcy, you may be able to strip the 2nd mortgage, but not the first. Congress is currently considering a principal paydown bill to allow you to cram down the first mortgage to FMV.
Answered on Nov 04th, 2011 at 2:33 PM
3 Awards
No. Hands down without question, no. Bankruptcy Judges are prohibited from modifying the rights of first lienholders on residential properties. Anybody who tells you otherwise knows absolutely nothing about Bankruptcy. You can discharge your personally obligation to the 1st, but you may not modify that loan. Now that said, youve got some weird facts in your question and I think you missed a step explaining what happened. You should sit down or actually speak with an attorney.
Answered on Nov 04th, 2011 at 2:25 PM
Consumer Bankruptcy Attorney serving Worcester, MA
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Law Offices of James Wingfield
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Ch.13 prohibits the modification of your primary mortgage on your residential real estate. So, unfortunately, you will be unable to cram down your first mortgage in a Ch.13 bankruptcy. The good news is you should be able to strip off the second mortgage entirely (provided that the values and balances are as you described) in Ch.13, as second mortgage that are wholly unsecured can be avoided, and the underlying balance due under the note will be traded as unsecured debt. However, you MUST get to the end of your Ch.13 plan and receive your discharge for the avoidance of the second mortgage to be effective. If you are set on trying to reduce the principal on your first mortgage as well you could consider Ch.11 which does allow such an outcome. However, you should be forewarned that Ch.11 is a very expensive and complicated process. Many consumer bankruptcy attorneys are not proficient in Ch.11, so you will want to shop for your attorney even more carefully than you would for a more common consumer bankruptcy attorney who practices in only Ch.7 and Ch. 13.
Answered on Nov 04th, 2011 at 1:53 PM
Bankruptcy Attorney serving Hayward, CA
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Carballo Law Offices
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No, you cannot alter the first mortgage on your home in any bankruptcy case. Congress said long ago that no principal or interest reduction on first loans. Call your Congressman since there have been many proposals to allow that but so far everyone has been knocked out mostly by Republicans in the House and Senate.
Answered on Nov 04th, 2011 at 11:34 AM
Bankruptcy Attorney serving Cleveland, OH
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Benson Law Firm
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Most, if not all, lenders I deal with will not allow you to lower the principal on any debt and a bankruptcy court does not have the authority to order a reduction in the first mortgage on your residence. You can, however, strip the second mortgage in a Chapter 13 bankruptcy. I would suggest you not wait until the mortgage holder gets a judgment against you.
Answered on Nov 04th, 2011 at 11:22 AM
You can't change the terms of your residential mortgage in Chapter 13 - it's specifically exempted in the Code. You may be able to strip off the 2nd in a chapter 13 if the home is worth less than the first. You need to consult with experienced bankruptcy counsel to see if you qualify for either Chapter 7 or Chapter 13.
Answered on Nov 04th, 2011 at 10:07 AM
Daniel James Wilson
If your 2nd is totally unsecured you can strip the 2nd. That means your house is worth less than the 1st mortgage balance. I suspect this is the case as the 2nd mortgage lender is suing you rather than foreclosure. You cannot strip in a Ch 7 so you will have to file a Ch 13. You cannot discharge the unsecured portion of your 1st.
Answered on Nov 03rd, 2011 at 11:31 PM
The 'cramdown' provisions you are referring to that could eliminate your unsecured second mortgage does not apply to first mortgages on you primary residences. You may be able to negotiate payment, interest or principal with your first mortgage lender. You should consult a bankruptcy attorney who can negotiate with your lenders on your behalf to get a Chapter 13 plan confirmed.
Answered on Nov 03rd, 2011 at 11:31 PM
Chapter 13 Bankruptcy Attorney serving Bloomington, MN
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Gregory J. Wald
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You may be able to eliminate the security interest in favor of the second mortgage holder through a chapter 13 case, but the law does not allow you to reduce the principle on your first mortgage against your primary residence. You would need to file bankruptcy to prevent the second mortgage from levying your bank accounts or other assets, or hire an attorney to negotiate a settlement.
Answered on Nov 03rd, 2011 at 10:34 PM
Bankruptcy Chapter 11 Attorney serving Dacula, GA
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Chronister Law Firm, LLC
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The Bankruptcy Code does not give the Court the legal authority to adjust secured debt for a first mortgage that is secured only by real estate that is the debtor's primary residence. Therefore, if this first mortgage is on your primary residence, you will not be able to adjust that debt. You can, however, adjust or eliminate the second mortgage by executing a lien strip. It sounds as though you should definitely consult an experienced Bankruptcy attorney to discuss your particular situation and options.
Answered on Nov 03rd, 2011 at 9:50 PM
Bankruptcy Attorney serving Concord, CA
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William Rubendall Attorney at Law
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You cannot modify your first mortgage by filing a chapter 13. You can strip the second mortgage if your home is worth less than the balance on the first mortgage.
Answered on Nov 03rd, 2011 at 9:49 PM
Consumer Bankruptcy Attorney serving Los Angeles, CA
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Orantes Law Firm
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No, you cannot modify a loan secured only by your principal residence under the Bankruptcy laws as they stand at the moment. There were some efforts made in 2009 to amend the Bankruptcy Code to permit bankrutpcy judges to do so, but they were defeated by Republican Congressmen and other Congressmen who seemed to be sponsored by the banking industry.
Answered on Nov 03rd, 2011 at 9:46 PM