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Filing: chapter 13 bankruptcy; found that papers were not properly filed, and is an unsecured mortgage.

Goodland, MN |

We are scheduled for court for or chapter 13 bankruptcy case for the 18th and all letters to the trustee are done. But there is the issue of the house. Our law firm said that it is the issue of the trustee. Bankruptcy is supposed to include "all" debt and all "unsecured" debt is to be part of the payment plan. I was told another bank will buy the loan, but why would they if there is not house for collateral. I guess I don't get the difference if it's classified the same other than its really bad for the bank.

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Attorney answers 2

Posted

When I had a client whose mortgage lender failed to properly file its mortgage, I proposed that the home be sold to satisfy the creditors, while claiming the homestead exemption for the debtors. It ended up being a 100% payment plan as the mortgage lender did not file a proof of claim, and my clients got about $30k when all was said and done.

Asker

Posted

What would your opinion be if we plan to keep our house due to location sentiment and area housing sales, and the house value is under 100,000. On our summary sheet the only thing that would change would be it moving from secured to unsecured. I want to make sure I don't miss something since this has fallen into lap. It is not anywhere included in the area of unsecured priority claims as of current code. I am not trying to get away with something, it just wasn't my mistake so I don't feel bad benefiting from it. I was told that no matter what the lien remains, but how can it of that debt has been classified as unsecured. The only answer I have been given is that it cannot be "expempt" because we would benefit from it, and yet I have it listed on schedule c as property that is exempt. Doesn't really make sense to me.

Alan D. Walton

Alan D. Walton

Posted

The Trustee has the right to sell free of the faulty mortgage. So you would need to buy from the Trustee. (You might need private financing to do this.) Otherwise, most trustees will work out a deal with the lender or its closing agent to get cash in exchange for allowing the lien to attach.

Posted

It sounds as though you listed the debt in your bankruptcy case, but due to an error on the part of the original creditor (bank) that the debt is now an "unsecured debt" rather than a "secured debt". Though a Chapter 13 will discharge the unsecured debt, it is possible that your plan proposes to pay some percentage to the unsecured creditors. If due to the banks error the home is now "free and clear" that may significantly increase the amount that would need to be distributed to your unsecured creditors in the Chapter 13 plan.

Asker

Posted

The amount owed I take it would be the change in our disposable income which would be what our current house payment is. Is it in your opinion that this would last the regular duration of the plan payment like all other unsecured debt?

Asker

Posted

http://4closurefraud.org/2013/01/22/the-law-offices-of-schneider-stone-reduces-boa-mortgage-to-unsecured-claim-in-chapter-13/

Marc W Gunn

Marc W Gunn

Posted

You should speak to your attorney about how this will effect your bankruptcy plan. However, in general, there are two potential effects. First, if due to your non payment of the "mortgage" your disposable income is higher, then you may be required to increase your payments for the life of your bankruptcy plan. Second, if the value of the home exceeds the homestead exemption, then there may be some "non exempt" equity that would need to be paid to the unsecured creditors. The law firm that assisted you with this matter was able to successfully challenge the mortgage lien and prevail, so I presume they also would be able to advise you regarding the specific impact (if any) on your Chapter 13 plan.

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