Can I lower the principle amount on my first mortgage by filing chapter 13 bankruptcy? - Bankruptcy Law Questions and Answers- LawQA.com

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Can I lower the principle amount on my first mortgage by filing chapter 13 bankruptcy?

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?

Answer By Kevin Heupel
Heupel Law
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Given your home value, yes, you could remove your second mortgage by filing Chapter 13. It's called a "strip off" and be sure to hire a bankruptcy attorney to file your case so it's done correctly.

Answer Applies to: Colorado
Replied: 11/4/2011

Answer By Phil Boardman
Philip R. Boardman, Attorney at Law
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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.

Answer Applies to: Virginia
Replied: 11/4/2011

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.

Answer Applies to: South Carolina
Replied: 11/4/2011

Answer By Mengjun Qiu
The Law Offices of Kristy Qiu
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There is no such thing as unsecured principals of a first mortgage on your primary residence. You can strip the second mortgage if what the property is worth is less than what you owe on your first mortgage. However, the bankruptcy code specifically prohibits cramming down a first mortgage of a primary residence, it can be done for investment properties, but not your primary residence. Otherwise every home owner in America who still owe mortgage would be filing for bankruptcy. Also, all the interests and escrow payments accumulated since the day you stopped paying will remain with the property even in a bankruptcy, that means that you're stuck with them if you want to remain in the property.

Answer Applies to: Florida
Replied: 11/4/2011

Answer By Bill Zurinskas
Bankruptcy Law Center
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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.

Answer Applies to: Colorado
Replied: 11/4/2011

Lake Forest Bankruptcy
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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.

Answer Applies to: California
Replied: 11/4/2011

Answer By Darren Aronow
The Law Office of Darren Aronow, PC
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Your second mortgage would not go away, your attorney will have to make a motion to avoid that lien as unsecured debt. As far as your first mortgage, it will depend on which district you are in and who is your judge to see if they will allow you to cram down your first mortgage on a primary residence. The case law varies.

Answer Applies to: New York
Replied: 11/4/2011

Law Office of Lynnmarie A. Johnson
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You are right that using the values that you have given, your second mortgage would be treated as unsecured, and would basically go away. However, the bankruptcy court has no authority to lower the principal on your first mortgage. So unless the law is changed, you are stuck!

Answer Applies to: Michigan
Replied: 11/4/2011

Charles R. Nettles - Attorney at Law
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The last time that I checked, which wasn't that long ago, you would not be able to change the principal balance on the mortgage through a bankruptcy.. As far as what can be done with the 2nd, you present a couple of issues. There is a distinct possibility of lien stripping in some jurisdictions but Texas is not one of them. If your 2nd mortgage is suing, then in all likelihood, there object is to foreclose on the property. I think a levy on your bank account is your least concern. It sounds to me like you are in the process of losing your home. A Chapter 13 can stop either a foreclosure action or a lawsuit so I think that it would be worth looking into.

Answer Applies to: Texas
Replied: 11/4/2011

Answer By James Wingfield
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.

Answer Applies to: Massachusetts
Replied: 11/3/2011

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