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Would We Be Better Off Now Worrying About Our Second Mortgage? – Justin

“Dear Steve,

I’ve been to my 3rd lawyer about BK. This is the one I used 10 yrs ago for my 1st BK. His fee is $2800 for a chap 7, $1k to retain him. I asked him if it would be better w/chap 13 since than I can get rid of my 1st mortg. as well. He seemed to think that it would be more costly that way and if I stopped paying my 2nd, they wouldn’t foreclose anyway, because in order to do so they would have to pay off the 1st at $160k just to get their $25k. What are your feelings on this and does it make any sense?

Can I ignore my 2nd mortgage when filing chap 7?


Dear Justin,

Hum, interesting question.

I suppose you could ignore the second to address the current issues. So technically the answer is probably yes.

But I did want to share my gut reaction to this strategy, yuck.

Maybe it is just me, I prefer solutions that address the issue at hand and allow someone to move on afterwards. With this approach it seems like you’d address a lot of your other debt concerns but you’d have this second mortgage, now in default, hanging out there waiting for you. I don’t know about you, but just knowing that liability was out there would leave me wondering when that shoe would drop.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.


P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

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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.


  • Steve, It feels like a huge load was lifted, but I still have money problems. Dental bills for kids never go away, medical also, makes me wonder how I ever survived before.
    The terms didn’t change with the mortgage, I just feel like I’ve been through enough and if Chase sold off the mortgage, then they can provide all the info to the new one and leave me out of it. What are they going to do, deny me my mortgage because they don’t have all the info? It feels insulting to me that they even asked since they took it from me.
    Hopefully the economy will get better some day and the nation will have fewer people asking you questions about extreme debt problems. Thanks for all your input and helpful direction Steve. Talk soon 🙂

  • Hey Steve, Just a bit of an update. I went with the Chap 13 lawyer, filed and have it set up for $150 a mo for 3 yrs. The 2nd mortgage was wiped off, and I keep the house. The interesting thing is, Chase held my 1st mortgage, and they sent it off to another company (which is also a collection company) to take care of, like selling the mortgage off. I know companies do this all the time, but I was making my payments to Chase all along, and nothing was supposed to change with the BK. The new company expects me to send them proof of home insurance, and sign some tax documents to make sure everything goes through. I don’t think I need to do anything, since I didn’t decide to go with another mortgage company. Any thoughts on this?

    • Justin,

      Well first off, congratulations. It’s been a long journey to this point but now that you’ve filed, how do you feel?

      Chase may have sold your mortgage to another company. It does happen. The request for proof of home insurance does not seem unreasonable but I have no idea what other documents they are requesting. It seems like if you call Chase to confirm this new company is not the entity servicing your account that should clear up the mystery. From what you’ve said it sounds like they have not changed the terms at all just who is handling it.


  • The bank charge off my 2nd with out notifing me,I was in the process of modifing the loan,they told me that i could not modify the loan,I had been advised that i could modify,the bank has ruined my credit by charging it off,we have not come to terms on how to pay down the.

  • Steve, I’ve narrowed it down to 2 lawyers, 1 chap 7, the other chap 13. Chap 7 is $1000 to retain and $2800 total with all my debt wiped except my 2nd mortgage. Chap 13 is $500 to retain, $1700 to finish and the rest of fees spread out thru 3-5 yrs of bankruptcy and my 2nd mortgage gets wiped as well as all other debt. First lawyer says don’t skip mortgage if I want to keep house, just withdraw from 401k to pay. Second says skip 2nd mortgage to pay since it will go away anyway, don’t touch 401k. My wife is stressed to the max with collector calls and homeschooling our 8 kids at the same time. I’m leaning towards chap 13.
    Any thoughts?

  • Yes, my insurance/taxes are all in my 1st mortgage payment. I’m thinking the bank might not have such a problem, like you said Steve, but the insurance worries me. I’m getting in contact with the last lawyer I spoke with to see what he advises.

  • I think what Justin is saying is that he has an impound account for his insurance and possible property taxes connected to his first mortgage. While this is a valid concern to be discussed with a local bankruptcy attorney, the lender would also have the option to place “forced” insurance to protect their security interest in the collateral.
    .-= Carl Starrett´s last blog ..Beware of Phony Payday Loan Debt Collectors =-.

  • Also, thinking if I skip mortgage payments (which include insurance & taxes)than my insurance company may drop me….hate being between a rock and a hard place.

    • Justin,

      I really don’t think they’d drop you. This is probably one of the best times to miss payments, the mortgage companies are so buried they are not in a rush to do anything. Of course you’d make up these payments in the bankruptcy so they will get current again.


  • Yes, the could start foreclosure proceedings. However, the automatic stay in a Chapter 13 would stop the foreclosure. Also, needing to get caught up on mortgage payments is one of the most commonly reasons for filing for Chapter 13 bankruptcy. Only local bankruptcy attorney who knows our situation can tell you if skipping a mortgage payment would be a good idea or not.
    .-= Carl Starrett´s last blog ..Beware of Phony Payday Loan Debt Collectors =-.

  • Justin, I am going to throw out some ideas to ask the attorney you decide to retain. Do not act on any of these ideas without consulting a local attorney.

    First, what about skipping all mortgage payments for a month or 2? Chapter 13 can be used to get caught up and fee up some cash to pay the legal fees.

    Second, ask if your attorney needs all of the Chapter 13 fees up front or if you can pay some of the fees over the life of the Chapter 13 plan.

    Third, be careful about the 401(k) withdrawal. This might create a future tax liability that could negatively impact your budget used to calculate your Chapter 13 plan payments.
    .-= Carl Starrett´s last blog ..Paychecks for California Employees Shrinking For The Rest of 2009 =-.

  • Carl, a little bit of history on my situation, and I know it seems odd going to 3 dif lawyers but the first said I must do chap 13 price $1700, the 2nd said I could do 7 but 13 is better for $3500, the 3rd as I said I used 10 yrs before and I was just curious on his take. I have 8 kids living at home, my wife and I earn less than $60k and our debt is now up to about $70k with all the interest they kicked in since I stopped paying my cards in July. I have little to nothing left and the end of the month to pay for an attorney after paying my daughters $120 orthodontist bill, $60 homeschool education cost, $300 electric, $140 water/sewer, $12-1500 food, $200+ gas for cars, $120 various medical bills,$60 internet for homeschooling, $1200 1st mort, $200 2nd mort. and anything else that happens to pop up like flat tires and such.
    I need to keep my house since renting would cost more for a family my size. If I can drop the 2nd mortg. that would put $200 more into my budget. If I do chap 13, it lasts about 3 yrs and I would pay around $200 a month during that time, but after that be free and clear.
    I plan to pay for my BK with my tax return in Feb., but may have to hit up my 401k to retain a lawyer til than.

  • Justin, I am a little confused about what you are trying to accomplish here. Going to 3 different bankruptcy attorneys is a bit unusual and is sometimes a red flag that you either have unrealistic expectations about what bankruptcy can do or you are just price shopping.

    Although you can discharge your personal obligations to repay a mortgage in bankruptcy, you cannot “get rid of” a first mortgage. If you receive a Chapter 7 discharge, the lenders will retain a valid lien against your home. Their only option would be to foreclose.

    I don’t know if a second trust would foreclosure for nonpayment. That is up to them.

    if you qualify, you can use Chapter 13 to strip aware a second mortgage if he fair market value of the house is less than the balance on the first mortgage.

    If your desire is to walk away from the house and avoid any liability for the mortgage, then Chapter 7 probably makes the most sense. However, I don’t know enough about your situation to make any more specific comments.
    .-= Carl Starrett´s last blog ..Paychecks for California Employees Shrinking For The Rest of 2009 =-.

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