Chapter 13 BK 2nd Mortgage Cram Down

Hi.  I filed Bankruptcy four years ago. 

My attorney listed a second mortgage as unsecured in my Chapter 13. The second mortgage was for more than the home was worth…so the second was considered wholly unsecured and my attorney was SUPPOSED to list in my plan that the lien would be avoided since there was no equity (stripped off).  The bank has never filed a claim and has never contested the unsecured status of the debt.

My attorney listed the debt as unsecured and I don’t have to repay it in my plan…but she failed to state how the lien would be handled upon discharge/completion of my plan. 

Now I have paid a fortune to the court to find out that the lien will continue to exist even after my bankrupty is over!!! 

A motion was filed to avoid the lien, but the court said it couldn’t be avoided even though there was no equity for the lien to attach to!  Maybe because it was a consensual lien? 

What can I do?  If I have gone through this entire nightmare just to end up with all this debt….I will cry!  Can I amend my plan or what should I do?  Desperate!  Help!

Thank you…P.S. I have spoken to eight BK attorneys here in Arkansas and NONE of them have any idea what I am talking about! 

Rachel

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Hi Rachel,

You know I’m not an attorney and the Broken Credit Blog is a free site that may be a starting point for learning.  Once an idea is born and particularly if it’s a legal matter, then a real attorney’s opinion is what matters.  I can’t have consumers send in questions that are questioning the opinions of their attorneys.

Having prefaced my statements with the above let me quote from the National Consumer Law Center’s “Foreclosures” (page 195) noting the following situations whereby a strip down is possible in a Chapter 13:

• The collateral involved is not the debtor’s principal residence (e.g., a vacation home or a rental property);
• The collateral is the principal residence, but the creditor has additional security (e.g. other real estate or personal property located in the residence);
• The collateral is the principal residence, but the lien of the creditor involved is not secured by any portion of the principal residence (e.g., for a $100,000 home with a first mortgage of $100,000, a second mortgage may be stripped off);
• The collateral is the principal residence, but the lien of the creditor involved is not secured by real property, such as in the case of a mobile home that is treated as personal property under state law;
• The collateral is the principal residence, but the lien involved is not a consensual lien (e.g. judicial liens, tax liens, most mechanics’ liens and any other involuntary encumbrance);
• The mortgage will mature during the course of a chapter plan or has been reduced to judgment before bankruptcy; and
• The mortgage is on property which serves both as the residence and as an income producing property (e.g., a multifamily property).

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.