Is There Any Way You Can Get Rid Of A Second Mortgage By Filing Bankruptcy?

The short answer is NO if you file a Chapter 7 bankruptcy unless you are surrendering your house. However, if you want to keep your house, you might be able to strip off the second mortgage if you file a Chapter 13 bankruptcy. It works like this. Under current bankruptcy law there is no mechanism to modify a first mortgage secured by a debtor’s home. However, many homeowners have found relief for their home mortgage woes by filing a Chapter 13 bankruptcy case, which allows a bankruptcy judge to strip away an entirely unsecured second mortgage lien.

For example, let’s say you purchased your home for $400,000, and obtained two mortgage loans. Today your home is worth $300,000 and you owe $305,000 on the first mortgage and $70,000 on the second. During a Chapter 13 bankruptcy case a bankruptcy court can strip away the second mortgage lien on your home because it is entirely unsecured by your home (i.e. the value of your home is not more than the first mortgage debt). The above example is only possible when the second mortgage is not secured at all by the value of the home. If the home is merely under-secured, lien stripping is not authorized. For instance, if the value of the home in our example is $305,001, then the loan is partially secured (by one dollar) and its second mortgage lien cannot be stripped.

By stripping the lien from your home, the second mortgage loan becomes an unsecured, non-mortgage debt. Unsecured debts receive the lowest payment priority during a Chapter 13 bankruptcy and typically receive pennies on the dollar, if anything. If you believe that Chapter 13 bankruptcy lien stripping could benefit you and your family, call me at 339-0222 so that I can advise as to whether you can strip off your second mortgage.

What Is A 341 Meeting And What Really Happens When I Go To Court?

I get this question constantly from clients. So here is a quick overview of what it is and how it works.

Whether you file a Chapter 7 or Chapter 13, you will be required to attend a 341 Meeting.  A 341 Meeting is also called a Meeting of Creditors.  The meeting is typically set 30 days after your case is filed. The Meetings are not held in an actual court room and the Judge is not present.

At this meeting you will meet the Trustee who has been assigned to your case.  Typically the trustee sits at the head of the table and has a tape recorder to preserve the hearing for the court’s records. And you will not be alone–an attorney from O’Bryan Law Offices will be right by your side at the table.  The trustee will have you raise your right hand and have you swear to tell the truth (put you under oath) just like in any court case where you will be testifying.  Then the questioning begins by the Trustee.

Let me stop you right here because this is where your palms start to sweat and your heart is beating 100mph.  I have never witnessed a client pass out, throw up, suffering a stroke or heart attack or any other ailment while under questioning.  In fact, the response I usually get from clients after it is over is “Was that it?”  That is because you are simply asked questions about the information you have provided about your financial information.  Who knows the answers better than you! And the trustee is not there to shame you because you have filed bankruptcy.  While they are looking at your assets to see if you have anything that could be used to pay your creditors, they are there to help you and do not pass judgment other than if you have assets, no assets, if your plan will pay out, etc.

And it wouldn’t be called a Meeting of Creditors if your creditors were not invited.  All creditors have notice of the meeting but most do not appear.  The majority of the cases I cover in Chapter 7 do not have any creditors appear.  It is more likely in a Chapter 13 but is still a low number that actually come to the meeting.  If a creditor appears, that does not mean your stomach should sink.  Usually, it is a creditor on a home or vehicle which appears and will ask you information regarding insurance and your intentions as to keeping or surrendering the secured item.  

The typical meeting lasts about 5 minutes or less.  You spend a lot more time waiting your turn than you do actually in the meeting itself.

It is normal to be nervous of the unknown but I hope this information puts your mind at ease.  Literally, if you need someone to hold your hand, we will be happy to do that too.

What To Do When A Creditor Is Left Out Of The Bankruptcy Petition.

It is extremely important to list all of your creditors in bankruptcy.  Only the debts listed will be discharged.  This is why we run a credit report and ask our clients to give us a list of every creditor.  Usually we find all of the creditors this way, but sometimes a forgotten (or unknown) creditor that does not appear on the credit report will be inadvertently left off of the schedules, meaning their debt is not subject to discharge, and the Client can still be held liable for that debt regardless of the bankruptcy UNLESS action is taken. 

The most common occurrence of this involves debts associated with hospital visits.   When you receive services through a hospital, you will generally receive invoices from not only the hospital, but also the doctor who treated you.  So, if you only list the hospital, the debt to the physician who bills you separately from his office is not going to be covered.  It is very important to list both.  If your trip to the hospital was so close to your filing date that you have not yet received bills, you must make a phone call to the hospital to find out who you should expect to receive bills from.

This also happens when a Debtor has no recollection of a creditor’s details and the debt does not appear on the credit report.  In these situations I encourage the Debtor to try their hardest to remember as much as possible.  Even if we do not know an account number or the amount owed, as long as we get the creditor’s name and address, we can include it in the bankruptcy.

If a creditor has been left off of the schedules and you realize it while your case is active, we are required to file amended schedules and identify the creditors.  There is a small fee to the Court for filing amended schedules, but it is necessary to complete your bankruptcy petition.  If you do not realize it until after your case has been closed out, we may have to petition the court to re-open the case in order to amend the schedules and discharge that debt.  There is a more substantial fee for that, but again, it is usually necessary. 

Obviously, debtors are expected to be open and honest in describing assets and debts, so if a debt was unintentionally left off of the Petition, you must bring that to your attorney’s attention RIGHT AWAY.  It can be fixed.  An intentional failure to list a creditor, on the other hand, can cause that debt to be declared non-discharged and survive the bankruptcy. In extreme cases courts have denied a bankruptcy discharge because of the debtor’s intentional failure to list all debts.