I owe Wells Fargo $24k of a $26k loan once backed by condo equity. Since I am upside down by about the same amount, could that be discharged as consumer debt and considered unsecured?
What is the current situation with the condo? Do you want to surrender the condo? You can file a Chapter 13 plan that proposes to surrender the condo, and pay the secured lending nothing. That will not stop the lender from getting stay relief, selling the condo, and filing a large proof of claim later. If the condo has a first mortgage loan, you could file a motion to determine secured status as an adversary proceeding, and "strip off" the second mortgage lien in your Chapter 13 case. That would allow you to keep the condo, pay the first mortgage, and strip off the second mortgage lien. You should consult a local bankruptcy attorney about your options.
If your first position mortgage balance exceeds the value of your home and the "HELOC" or second mortgage is not supported by any equity in the home, you can file a chapter 13 and reclassify the second mortgage as wholly unsecured. The details of making this happen is why you need to contact an attorney today. In chapter 13, you need to devote your "excess" income to a chapter 13 trustee for either 3 years or 5 years depending on your income. A poorly drafted petition and improper planning could cause you to remain in bankruptcy 24 months longer than necessary. Not accounting for all your expenses and improperly reporting your income could cause you to pay more than necessary and pay a large portion of your newly classified second mortgage in your 13 plan. Get good advice, and sometimes "cheaper" is not better.
If the value of the first mortgage exceeds the value of the collateral (the house) and there is no equity securing the HELOC, then the HELOC can be "stripped" and treated as unsecured. The debtor would have to file the 13 then file an Adversary Proceeding to determine the value of the property and to strip the HELOC. I agree with Mr. Egner and Mr. Harrell both that it can be done and in the value of getting experienced local counsel.
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Get an atty. if the unit is worth less than the debt due the first mortgage holder, r/e t xes and condo fees (if lien) then yes the second should be strippable iin a 13.
Of course there are a host of other issues. In some courts a separate motion or adversary action is not required to strip a wholly unsecured second mortgage.
however assuming this is your residence and not a rental unit if you owe 200K and the first mortgage is 199K and the second enjoys 1K of equity, you can not strip it.
If you have a loan that is secured, i.e., it is a lien against your real property or some other collateral, and there is no longer equity available to secure that debt, it can be stripped off. The "strip off" of this no longer secured loan, can only be done in a Chapter 13 bankruptcy case. It cannot be done in Chapter 7 in the District of NJ. Mr. Egner gave you very good advice about this situation earlier. There is much to consider. Re-read Mr. Egner's advice and I would recommend that you follow it.
Bruce C. Truesdale
I agree with what the other attorneys have posted as of this date. The "strip-off" in Chapter 13 is the most expeditious way of approaching the problem but only works if the second (the HELOC) is without any equity. However, just as a matter of further information, if a Chapter 7 is filed, and the second mortgage is not reaffirmed, it is technically discharged. It turns the debt into something akin to what is called a "non-recourse" obligation, meaning that the bank/mortgage company cannot demand payment of the debt from the debtor but may only look to the collateral to satisfy the claim. I have never seen, in thirty+ years of practice, a mortgagee attempt to foreclose on a mortgage that is completely out of equity, for obvious reasons. In NH, I doubt that the courts would allow a foreclosure in that instance.
Doing this in Chapter 7 certainly presents challenges, e.g. the decision as to whether to reaffirm the first mortgage. But I have had clients who took this route simply because their budget would not support a Chapter 13. Later, they were able to "buy out" the second mortgage for very short money.
But don't try to do this yourself. Get a lawyer who understands this concept so that you have full information.
This constitutes a general discussion of bankruptcy and is not to be relied upon as specific legal advice for any person or situation. Consult a lawyer for that purpose.
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