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Advice on Bankruptcy and Deficiency Balance on a Second Mortgage - The Bills.com Blog
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Advice on Bankruptcy and Deficiency Balance on a Second Mortgage
Thursday, Jan 8, 2009
Question: I need to know if a bankruptcy could help to wipe off the personal lien after a foreclosure on a second home?
Answer: Due to the 2008-2009 recession, many Americans are struggling with their mortgage payments, and more and more homes are entering foreclosure. A bankruptcy filing may be able to discharge the liability for any unsecured debt resulted from the foreclosure of a home.How bankruptcy will affect your debt will depend on what type of bankruptcy you are able to file. If you are considering filing for bankruptcy protection, I encourage you to consult with a qualified bankruptcy attorney in your state to determine if bankruptcy can help you resolve your foreclosure debts.
Foreclosure & deficiency balance
When a home is foreclosed upon, the mortgage lender usually auctions the property at a foreclosure sale, applying whatever amount is received at the foreclosure sale to the debt owed on the mortgage. In many cases, the sale price at auction is not sufficient to cover the mortgage and other secured liens on the property, such as home equity loans; the difference between what you owe on the property and what the lenders actually receive is called a deficiency balance. In many states, deficiency balances can be collected like any other unsecured debt.
Some states prohibit creditors from collecting a deficiency balance with "antideficiency balance statutes." These laws state a lender may not obtain a judgment for a deficiency balance arising from a purchase money loan. This means an original mortgage lender cannot obtain a judgment for a deficiency balance if it forecloses. Antideficiency statutes vary significantly. Therefore, you should consult with an attorney in your state who has experience
in property law to determine whether your state offers antideficiency laws and your rights under these laws according to your situation.
Whether a deficiency is created on a loan will depend on the balance of the loan compared to the value of the home. For example, if a home is worth more than the total amount of your loans, the loan may be covered by the auction sale price. If you would like to read more about the foreclosure process, I encourage you to visit the Bills.com Foreclosure page .
Bankruptcy, generally
Many homeowners facing foreclosure choose to file for bankruptcy protection, either to try to stop the foreclosure proceedings, or to discharge any debt resulting from the foreclosure. There are two basic types of consumer bankruptcy: Chapter 7 and Chapter 13.
In a Chapter 7 bankruptcy, also called a liquidation bankruptcy, a bankruptcy trustee will examine your assets, and if you have any assets which are not exempt, sell those non-exempt assets to repay your creditors. Once your non-exempt assets have been sold to pay your creditors, all remaining unsecured debts will be discharged by the bankruptcy court, including any deficiency balance resulting from your foreclosure. Many people who file for Chapter 7 protection are able to keep all of their property because they have no non-exempt property. Each
Whether a deficiency is created on a loan will depend on the balance of the loan compared to the value of the home. For example, if a home is worth more than the total amount of your loans, the loan may be covered by the auction sale price. If you would like to read more about the foreclosure process, I encourage you to visit the Bills.com Foreclosure page .
Bankruptcy, generally
Many homeowners facing foreclosure choose to file for bankruptcy protection, either to try to stop the foreclosure proceedings, or to discharge any debt resulting from the foreclosure. There are two basic types of consumer bankruptcy: Chapter 7 and Chapter 13.
In a Chapter 7 bankruptcy, also called a liquidation bankruptcy, a bankruptcy trustee will examine your assets, and if you have any assets which are not exempt, sell those non-exempt assets to repay your creditors. Once your non-exempt assets have been sold to pay your creditors, all remaining unsecured debts will be discharged by the bankruptcy court, including any deficiency balance resulting from your foreclosure. Many people who file for Chapter 7 protection are able to keep all of their property because they have no non-exempt property. Each
state has its own schedule of exempt assets, so you should consult with a qualified bankruptcy attorney in your state to find out if Chapter 7 is a workable solution for your situation. An attorney will also be able to tell you if you qualify to file Chapter 7 under the new guidelines enacted by Congress in 2005.
A Chapter 13 bankruptcy, also called a “wage-earner’s bankruptcy,” allows you to propose a plan to repay creditors over time–usually five years. Your monthly payment amount will be based on your monthly disposable income as defined by the bankruptcy code. After you have made payments to your creditors for five years, any remaining unsecured debts will be discharged. Chapter 13 is commonly used by debtors whose assets exceed the exemptions offered by state law. It is also used by many consumer debtors who do not qualify for Chapter 7 relief under the means test, which went into effect in 2005 with the Bankruptcy Reform Act.
If you are considering filing bankruptcy, you should consult with an attorney to find out if bankruptcy will benefit your financial situation. I encourage you to read more about bankruptcy at the Bills.com Bankruptcy Information page .
I wish you the best of luck in finding a solution to your financial difficulties, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
A Chapter 13 bankruptcy, also called a “wage-earner’s bankruptcy,” allows you to propose a plan to repay creditors over time–usually five years. Your monthly payment amount will be based on your monthly disposable income as defined by the bankruptcy code. After you have made payments to your creditors for five years, any remaining unsecured debts will be discharged. Chapter 13 is commonly used by debtors whose assets exceed the exemptions offered by state law. It is also used by many consumer debtors who do not qualify for Chapter 7 relief under the means test, which went into effect in 2005 with the Bankruptcy Reform Act.
If you are considering filing bankruptcy, you should consult with an attorney to find out if bankruptcy will benefit your financial situation. I encourage you to read more about bankruptcy at the Bills.com Bankruptcy Information page .
I wish you the best of luck in finding a solution to your financial difficulties, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
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1. Posted by Randy on Wednesday 14th January 2009 23:33
i am being sued for credit card debt.the law firm that is doing this called said they wanted to work out a payment plan for there client i have beentrying for three years to do this. now that three years of insterts is added on they want to make a deal. i owen no property or have bank account i live in kentucky. what can they do please tell me.also what is a attchment on me things mean
2. Posted by Bill on Thursday 15th January 2009 16:05
If they sue you and are able to get a judgment against you, then they might be able to garnish your wages or your bank account. You can read more about KY collection laws at http://www.bills.com/collection-laws/
3. Posted by Pierre on Friday 6th February 2009 17:10
I have a 2nd home which is fully paid. I would like to transfer the property to my brother. So I can file Bankruptcy because I lost my job last June and cannot pay for all my bills (main house, main house 2nd mortgage and Credit Cards). Question: When I file for bankruptcy can the courts still liquidate the 2nd home from my Brother? Please advise and thanks.
4. Posted by Bill on Saturday 7th February 2009 12:20
No, if you are able to successfully transfer the title of the 2nd home to your brother, then the bankruptcy court will not consider that as your property. I have no idea as to the local regulations involved in a title transfer where you live, so I would find out the details locally.
5. Posted by Starr on Monday 23rd February 2009 07:11
Pierre - to transfer an asset, like a 2nd home, to a friend or family member in order to protect it from the reach of the bankruptcy court has serious implications. This could be what is called a "self-settled trust" and the look back on that is 10 years. Speak with an attorney who specializes in bankruptcy BEFORE you do the transaction. Once the transaction is complete, it will be hard to unring that bell.
6. Posted by Angelica on Friday 17th April 2009 00:41
Due to job loss and financial difficulty, I moved from MI to California for a new job. I tried selling our home in MI but could not sell it. My home in MI was foreclosed but I am still getting bills on the 2nd mortgage (sold to a diff lender by my former lender) and a personal loan secured by the former property in MI. I lost my job recently in CA and was able to find another job but my new salary is 30% less than previous. I cannot afford to pay my credit card debt and any defficiency once my original debtor gets to sell/auction my old home in MI. More than a year ago, I signed up with Credit Solutions to consolidate my credit card debt. I have been paying them reguarlary but today got a summons from Capital One. I don't know what to do..we don't have any other assets ..should I file for bancruptcy (7 or 13) to get my credit card and future deficiency discharged? Will it put the summons on hold or do I need to call Capital One's atty?
7. Posted by Brent on Monday 20th April 2009 08:55
Yes, you can probably file for bankruptcy protection, but whether you will qualify for Chapter 7 or 13, only a qualified attorney will be able to check after going through your finances. You may or may not be able to include the debt that you got the summons for, but meanwhile, you should file a reply to the court before the due date and also be present in court, or else a default judgment will be passed against you. I am sorry to state I am hearing a lot of negative feedback about Credit Solutions, check on this link: http://www.nytimes.com/2009/04/20/business/20settle.html?_r=1&scp=1&sq=credit%20solutions&st=cse You are better off in cutting your losses and canceling your payments to that program.
8. Posted by Malou on Wednesday 8th July 2009 05:49
I currently own a 2 bedroom, 900 sqf condo. I have an ARM with my mortgage company. We are a family of five and in great need of space. I cannot sell because im truly upside down on the value and the mortgage company will not modify nor let me short sale because we dont have a financial burden. Im thinking of getting a second home since i qualify to get another loan. Once i purchase a second house, im thinking of walking away from my condo and filing a chapter 7 bankruptcy to foreclose it. Do you think i should do this?
9. Posted by Bill on Wednesday 8th July 2009 11:34
No! First, avoid foreclosure at almost any cost. It's a terrible blow to your credit score, and in your situation foreclosure is something you can avoid. Second, bankruptcy is a slightly better option, but still affects your credit report for many years. Third, see if you qualify in this federal program: http://www.makinghomeaffordable.gov/ This is far better than the other two options. Finally, see if you can wait-out the current market conditions. Real estate prices today are bad or worse, depending on the location. However, they will eventually turn around.
10. Posted by Debbie S. Aird on Monday 1st February 2010 11:42
My home was forclosed back in February 2009. Now the bank is coming after me for a second mortgage that has a balance of &29,000.00. At this point I have no liquid assets and no money saved. Is there any help or sound advice I may use ?
11. Posted by Bill on Monday 1st February 2010 13:10
The second mortgage is now an unsecured debt. Therefore, you can enroll it in a debt negotiation program. (Go to the Bills.com debt relief savings center.) Another option is to negotiate the debt yourself. Consider offering the creditor 10 cents on the dollar for a lump-sum settlement.