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Chapter 7

If my home has a second mortgage, can I file bankruptcy on just one of the mortgages and still keep the house?

September 14, 2013 by TomScottLaw

Thanks for submitting your question. You can accomplish different goals if you declare bankruptcy, so you need to consider all of the details of your lenders’ promissory notes and mortgages, along with your complete financial and credit position, to determine your best course of action.
This answer to your question does not consider your specific case, but covers the general issues involved in a situation like this. You may want to consult with a bankruptcy attorney to ensure your case is handled to meet your goals.
When you purchased your home you signed two pieces of paper with each lender – a promissory note and a mortgage.

  • The promissory note is just that — a promise that you will repay the debt.
  • The mortgage is a "lien" (or encumbrance) that provides a means for the lender to get some or all of its money back, if you do not pay on the promissory note.

When you purchased your home, you very likely made an agreement with the lender which says something like, “I agree to pay you each and every month on the promissory note and if I do not pay, then you can foreclose on my home.”
Foreclosure is the legal action of proving to a judge that you did not keep up your promise and asking permission for the court (through the local sheriff) to sell the real estate to the highest bidder at auction and “foreclose” everyone else’s interest in that real estate.
Please keep these concepts in mind as we very briefly skim the surface of bankruptcy.
There are primarily two chapters of bankruptcy that deal with consumer debts, called Chapter 7 and Chapter 13.
An individual only qualifies for a Chapter 7 if his or her income is low enough. With regard to a house with mortgages in Chapter 7, a debtor can usually do one of two things: 1) keep the home; or 2) surrender the home. If a debtor keeps the home and is current on payments, the debtor will usually “reaffirm” the debt by signing a “reaffirmation agreement.”

  • The reaffirmation agreement keeps the debtor on the hook so to speak, and requires that the debtor continue to make all payments in the normal fashion as though the bankruptcy had never occurred.
  • If the debtor does not sign a reaffirmation agreement then the personal requirement to continue to make payments in the “promissory note” will go away, but the lien rights under the mortgage do not go away. In other words:
    • If you do not sign a reaffirmation agreement and stop paying for your home, the lender can never collect any more money from you on the promissory note as that debt has been eliminated by the bankruptcy.
    • However, the lender could still foreclose on the real estate to try and get some of its money back from the sale.

So to answer your question regarding a Chapter 7 – “Presuming that you do not have significant equity in your home, you are current on your mortgages, and your income is low enough to qualify for a Chapter 7 filing, you would be able to keep your home if you would like. The law requires that we list ALL your creditors, including the first and second mortgage lenders, in the bankruptcy (whether you want to reaffirm the debt or surrender the debt).
You would need to continue making payments on both mortgages if you wanted to keep the home.”
Regarding Chapter 13 – almost any individual can file a Chapter 13 bankruptcy (with certain restrictions that your attorney should know under Section 109e). Individuals must file a Chapter 13 if their income is too high, or if they filed a Chapter 7 in the prior eight years (or a Chapter 13 in the prior 6 years).
BUT, some people file a Chapter 13 for other reasons besides the mandatory ones, including, but limited to:

  1. Saving a home that is in foreclosure
  2. Lowering payments on an auto that does not have favorable lending terms
  3. Paying back taxes without concern for future penalties or IRS levy
  4. Protecting assets from being sold in a Chapter 7
  5. Protecting co-debtors from law-suits

But there is another reason why someone MIGHT want to file a Chapter 13, and that is in limited circumstances we might be able to remove a second mortgage.

  • In a situation where the balance owed on the first mortgage is higher than the value of the home, we can try to strip off a second mortgage. The law allows it, and the only reason that I say “try” to strip off the second mortgage is that the lender may think that the value of the home is higher than we do.
  • So, if the payoff on the first mortgage is $150,000.00 and the fair market value of the home is only $100,000.00 then a Chapter 13 will allow us to strip off the second mortgage and treat it like any other unsecured creditor (like a credit card or medical bills).

In a Chapter 13 bankruptcy, the law requires that you remain in Chapter 13 for 36 to 60 months, depending on your income, but when the case is complete you will only have one mortgage on your home – and yes you get to keep the home.
So, with all that being said, while we are available to answer any of your questions via phone or email, we would suggest instead that we meet in person to go over the details of such a complex issue. Feel free to send us an email or contact our office at 317-255-9915 to schedule a free consultation at one of our three convenient locations.

Filed Under: Chapter 13, Chapter 7, Foreclosure of Home / House / Real Estate, Mortgage, Personal Bankruptcy in Indiana, Property & Asset Protection, Questions About Bankruptcy

Are there different types of bankruptcy?

July 5, 2013 by TomScottLaw

There are several chapters of bankruptcy including Chapter 7, Chapter 9, Chapter 11, Chapter 12, and Chapter 13. The majority of consumer cases are either Chapter 7 or Chapter 13.
A few of our business clients must file Chapter 11 (which is a business reorganization) or Chapter 12 (which is exclusively for farmers). Chapter 9 is for governments, and you may have heard that Detroit, Michigan recently filed for Chapter 9 bankruptcy protection.
Learn more: Chapter 7 vs. Chapter 13

Filed Under: Chapter 13, Chapter 7, Personal Bankruptcy in Indiana, Questions About Bankruptcy

What is the process to file bankruptcy?

July 5, 2013 by TomScottLaw

All you need to do is contact our office and set a free consultation with one of our experienced bankruptcy attorneys. Each of our lawyers has focused almost exclusively on the bankruptcy law for at least 15 years, and we feel confident that we will be able to answer your questions and reduce your stress.
If you decide that bankruptcy will help reduce your stress and make your life happier, then we will discuss the fees (which will depend on the complexity of your case) and go over the information that we will need to put together the bankruptcy petition that will be filed with the Federal Bankruptcy Court. We will be with you every step of the way.

Filed Under: Chapter 13, Chapter 7, Personal Bankruptcy in Indiana, Property & Asset Protection, Questions About Bankruptcy

How long does the bankruptcy process take?

July 5, 2013 by TomScottLaw

In a Chapter 7 case, once the case is filed we will attend a meeting with the court approximately 30-45 days after the case is filed and the debts will be discharged approximately 60 days later. Therefore, we can expect a total period of approximately four (4) months from filing date to discharge date.
In a Chapter 13 bankruptcy, Congress requires that a plan payment continue anywhere from 36-60 months. Once the plan payments are complete, the court discharges debts approximately 60 days later. However, while you are in bankruptcy you will be protected by the stay (which prohibits creditors from collecting any debts).

Filed Under: Chapter 13, Chapter 7, Personal Bankruptcy in Indiana, Questions About Bankruptcy

Is bankruptcy right for me?

July 5, 2013 by TomScottLaw

While we will be able to assist you with the entire bankruptcy process and will answer all of your questions to make sure you understand the pro’s and con’s of filing, whether to file remains a personal choice.
In our opinion, however, if you feel like the burden of your debt is starting to create problems in your life (such as martial issues, high blood pressure or other medical issues, unbearable stress, or a decrease in job performance) then it may be a good option for you.

Filed Under: Chapter 13, Chapter 7, Personal Bankruptcy in Indiana, Questions About Bankruptcy

How much does it cost to file bankruptcy?

July 5, 2013 by TomScottLaw

There are two components to figuring the cost for filing bankruptcy. The first, and easiest cost to calculate is the court’s filing fee, which is the amount the court charges to accept a bankruptcy filing.
As of June 1, 2014, the court charges and collects $310.00 for a Chapter 13 filing and $335.00 for a Chapter 7 filing. The second component are the attorney fees, and that amount is going to depend on the complexity of your case.
For simple Chapter 7 cases, our fees start at $665.00, plus costs, and can move upward for more complex cases (dealing with parcels of real estate, businesses, tax issues, judgments, etc.)
Chapter 13 fees are set by the court, but the majority of fees are paid through a bankruptcy reorganization. The upfront fees to file a Chapter 13 may be as low as $500.00.
Our firm is committed to providing the best possible service along with low fees and will consider any specific circumstances you may have in determining price.

Filed Under: Chapter 13, Chapter 7, Personal Bankruptcy in Indiana, Questions About Bankruptcy

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