Tom Scott Law Indy

Bankruptcy Attorneys in Indianapolis Since 1980

Property & Asset Protection

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

by

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.

What is the process to file bankruptcy?

by

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.

Can I stop bill collectors from calling me?

by

The moment a bankruptcy case is filed the law requires that creditors stop all collection activity including telephone calls, billings, garnishments, freezing bank accounts, and all lawsuits and foreclosures.
If a case has not been filed then the only law that may decrease the frequency of collector calls is the Federal Fair Debt Collection Practices Act. This law only applies to debt collectors and not to the actual creditor itself.
If you are receiving harassing telephone calls then you should contact legal counsel as soon as possible.

Listing Your Bills:

When you list your bills prior to filing for bankruptcy, it is your responsibility to provide the names, proper addresses, and account numbers for all your bills. A bill that is not listed in the bankruptcy or that has a wrong address cannot be discharged.
You will be given a copy of the bankruptcy papers to keep for your records. It is your responsibility to check the papers in Schedules D, E, and F, to be sure all your bills are listed.
Related articles: Creditors

What happens if I do not declare bankruptcy?

by

Our office often works with creditors to try and negotiate a lower settlement on claims and has reached great success. Our office oftentimes has a greater success in non-bankruptcy workouts because the threat of bankruptcy is always on the creditors mind when we negotiate.
Creditors know that our office has filed thousands of bankruptcies and that if they do not settle then there is a good chance that they will get nothing (or much less than we have offered).
In order to have a successful non-bankruptcy workout, we like to see a limited number of creditors (as any single non-cooperative creditor may ruin the whole deal for everyone) and a source of funds (such as borrowing from a friend or taking a hardship loan from retirement).
We recently had a client settle on four claims for less than $17,000 when he owed over $70,000. He did not want to file and was able to borrow from a retirement account. Our fees for saving him $50,000 was less than $2,000.

Will my paycheck be garnished?

by

In most Chapter 7 bankruptcy cases, your wages cannot be garnished. Exceptions exist, such as past-due child support. If you have a job and do need to declare bankruptcy, Chapter 13 might be a better choice. Learn more at Chapter 7 vs. Chapter 13.
Be sure you understand all of the ramifications of filing for bankruptcy and all of your options, whether you do or don’t file. For immediate assistance, please contact us.

Can I keep my house if I file for bankruptcy?

by

In many personal bankruptcy cases you can keep your primary residence. Learn more at: What is Bankruptcy.
If you feel you need to make an immediate decision about bankruptcy, because you are having trouble (or have stopped) making the mortgage payments on your home, please contact us or another bankruptcy attorney right away to discuss your options before you make your final choice.

Does my house being in foreclosure affect my ability to file?

by

Filing for bankruptcy may delay (Chapter 7) or prevent (Chapter 13) you from losing your primary residence to foreclosure. If you are at a point where you need more information about the affect foreclosure might have on your ability to file for bankruptcy, you probably should contact us right away. We can help you.