Personal Bankruptcy Bankruptcy and 2nd Mortgage

[tricster17]

In the case of a short sale when the full debt amount is not forgiven by the 2nd mortgage, what are the bankruptcy options? The 2nd mortgage was refinanced for the interest rate only, but it still gives the bank recourse. They would be earning $15k of a $70k debt in the sale, but more than likely will still come after me for more. I am not willing to pay beyond that amount but am concerned that I could lose my car in a Chapter 7 filing. Any help would be appreciated.

 

[army judge]

Each person's finances are unique.
Answers you receive here should be considered as general, not specific advice.

Your best bet is meet with and didcuss your options with a bankruptcy attorney.

Generally, a BK will save your home.

The second you describe appears to be unsecured.

If it's a line of credit, more than likely it'll be discharged in your BK.

But, speak with an attorney or two.

The initial consult is often free of charge.

 

[tricster17]

Thank you, I have reached out to someone and look forward to hearing more. I don't want to save the home and am most concerned about keeping my car and other very minimal assets without paying any additional to the 2nd mortgage.

 

[army judge]

Thank you, I have reached out to someone and look forward to hearing more. I don't want to save the home and am most concerned about keeping my car and other very minimal assets without paying any additional to the 2nd mortgage.

Good news for you.

If all you wish to achieve is as you've posted above, a BK will accomplish that for you!

 

[dazowak]

I dont know if this helps, a few month have passed; California is a non-recourse state. Far as I know, as I've been told, you can walk from the home and there is no recourse. Furthermore, CA passed a bill, SB 401?, where the forgiven debt is not taxable from a short sale. Additionally, you are allowed up to $26k and change using the wildcard option. Equity in one vehicle of $3,000 and $23,000 to be apply towards anything of value.

 

[tricster17]

Thanks for the reply! CA is a non-recourse state, but I refinanced the original loan in order to get a better interest rate. That allows them the opportunity to take action. I am glad that the debt will be forgiven, and our short sale did go through! I am doing what I can to negotiate and avoid bankruptcy at this point and feel I will be successful without paying too much additional money.

 

[dazowak]

The refi was just a rate refi? No money was taken out?

Since you're in CA I doubt you have any equity anyway. I'm sure this is similar to your situation (regarding value) as our home dropped 54% from the purchase price. We had an offer to short sale, we had approval on a Thursday, but Friday the lien holder received notice of the bk and pulled the approval letter. Our short sale terms had a 15 day escrow on a CASH purchase and would've been complete and finalized before the court date, but the lien holder pulled the approval anyway.

About the bk; if it will take you longer than four years to pay off the debts, file for bk. Yes, a bk will hurt the credit (but in reality, who cares) but it will recover and you have the option to purchase a home after four years. A bk stays with you for 7-10 years, but that doesn't mean you wont have anything. What kinda terms do they offer on a negotiation; do you still get 15, 20, or 30 years? If not, I know that $50,000 debt paid over 5 years at a 4% rate is $920 each month. Paying $920 a month for 5 years is a heavy burden; according to the means test estimations ($63,000 2 person income <--as a reference point) you would be paying 15% of your GROSS, not adjusted, income. If the terms are 15+ - a bk will be off your record within 10 years.

And in California, the Homestead Wildcard is $23,000 + $3,000 equity for your car. Therefore, you can place $26,000 minus any liens on the vehicle to save your car. My household, two cars and a boat, which values are good enough that I was able to apply the wildcard, so I get to keep them.

 

[tricster17]

Thanks for all the great information! The collection agency I am working with has been quite cordial. They received 12k of a 70k loan during the short sale, and I have a feeling they will settle the loan for another small lump sum. They know that I'm getting things in place for bankruptcy and seem to have "new options" each time we speak; I am confident I will be able to negotiate something that will be better than bankruptcy. Fingers crossed!