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My Wife Filed Bankruptcy and Included Mortgage and Home Equity Loan. – Stan

“Dear Steve,

My wife filed for Chapter 7 Bankruptcy. I have a 1st mortgage and a home equity loan from the same bank. Both are showing as discharged on my credit report since neither were reaffirmed.

What happens if we stop paying the 2nd? Do we have to pay it off or will their be a lien attached to the property when it comes time to sell?

And recently we tried to re-finance through HARP on the 1st but were turned down because the bank is saying we need to reaffirm the mortgage.

What are my options? We want to keep the property and get a better rate and offer a cash payoff of 10% on the loan of the 2nd if we have to.

Stan”

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The Answer

Dear Stan,

Whose name was the mortgage and home equity loan in? Both, yours or hers?

A bankruptcy will kill the mortgage but not the lien against the property.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

My Wife Filed Bankruptcy and Included Mortgage and Home Equity Loan.   Stan
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Buddy H.

    Hi Steve,
    This is not a review for Stan’s case, rather I also need your assistance since I have a similar predicament with Stan’s case though not exactly the same. In my case, I am the only one who filed Ch.7 and already got discharged. The house is under both my & my wife’s name (living in CA State, our bank is  CitiMortgage) with no second loan, but at the time of my filing she was overseas so she did not file BK, only me. We have accumulated a sizeable equity in the house, and our mortgage is scheduled to be fully clear and paid off by March 2018.
    Like Stan, I want to know what happens if we stop paying the monthly mortgage payments now? Will there be a lien or other encumbrances, or sort of a BK notice attached to the property when it comes time to sell? We are trying to apply for HAMP due to financial hardship with very low household incomes (or other refinance programs like HARP in the short future soon after 2 years from the day of my discharge passing) – but right now the bank told me that I need to reaffirm my mortgage first. Yet my legal counsel (he moved away and no longer in BK business) states that in CA there is no need to reaffirm a mortgage when filing Ch.7 (as against in filing Ch.13), because it will only benefit the creditors and mostly the Judge will not reaffirm anyway to protect home owners’ interests in their properties.
    Yet my bank persists to get our mortgage reaffirmed first before applying for HAMP. My problem is, my Ch.7 was already discharged, but the bank said it still could be re-done by filing a petition to the Judge to reopen my BK filing and then asking the Court to reaffirm before discharging it again. My counsel warns me it would be a very risky thing to redo my filing, even if it could be done, knowing my Homestead Exemptions qualifications against high equity in our mortgage. We could greatly risk losing our house to the creditors if we ask the Judge to reopen my BK case.
    Now I do not know whom is correct, my counsel or the bank: Is reaffirming our mortgage before the discharge when filing Ch.7 really necessary to do, and why if so? What are my options? Should we keep the property and get a possible better rate through HAMP (currently at 5.25%, it’s a 15-Year Fixed refinance in the 2003) thus hopefully lowering our monthly payments that we can afford, or sell the house to get the equity and then buy a cheaper house out of State? How about news lately that says our goverment has rolled out a new program that may lower principal balances on our mortgages – is this true?
    Thank you for your prompt assistance.

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