The Bankruptcy Law Network has posted an article that discusses how it’s possible for you to do away with both a first and second mortgage on an underwater home by filing for Chapter 13 bankruptcy before the home is sold as a foreclosure.
Once the first mortgage company takes the property, the lender of the second mortgage can choose to sell the debt to a collection agency who can then harass the homeowner or file a lawsuit or a 1099 form with the IRS.
The best way for an underwater homeowner to protect their assets is to file Chapter 13 before the home is sold by the bank. By filing Chapter 13 bankruptcy you can choose and option that will surrender the house to both the first and second mortgage holders. This prevents the second mortgage lender from filing a deficiency claim because the house hasn’t been liquidated. The deadline for the second mortgage lender to claim stake in the liquidation is much earlier than when the actual liquidation takes place. Chapter 13 allows struggling homeowners “to bring a swift and satisfactory conclusion to an otherwise uncertain financial predicament.”
This plan of action works particularly well for people who don’t a lot of other debt because…
a 100% plan can be proposed that will pay 100% to all unsecured creditors. Having a “100% plan” in Chapter 13 is like slipping the maître d’ $100 for the best table in the restaurant. Everyone treats you like gold because you’re paying all creditors 100% – technically, even the 2nd mortgage by surrendering the real property in full satisfaction of the debt.
You can even still fight the foreclosure because when you surrender “collateral” you’re really surrendering the “owner and holder note of the mortgage.” Chip Parker, a Florida bankruptcy attorney and writer of the article, says that in Florida (where judicial foreclosures are practiced) the mortgage holder must present its case in state court before the debtor can be evicted from the property.
However, since the homeowner has filed a bankruptcy, much of the downside risk involved in fighting the foreclosure is eliminated. At best, the mortgage servicer can ONLY get the property. It cannot collect any money from the homeowner.
If you have further questions or concerns about foreclosure or bankruptcy, feel free to contact us through our website or by calling 205-879-2447. You may also obtain a copy of our free book on stopping wrongful foreclosures and the problems of hidden fees by emailing us.
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