Here is another important question: Are second mortgages usually discharged in chapter 7 bks? Our bk was discharged in 2011. I was checking our credit report that shows that our two second mortages were discharged at that time. We have been paying both mortgages since that time. One mortgage , over 9,000.00., (I’m assuming they meant $90,0000.00) the other about 1,600.00. (I’m assuming $16,000.00). I realize we should have been more aware of our circumstances, but is there a recourse we can take to recover our monies?

My answer:

The Bankruptcy eliminates your personal liability for the mortgages. That’s why they are showing that way on your credit report. However, Bankruptcy does not eliminate the lien on the property. So, if you are trying to keep the house, those liens need to be paid. No, you cannot get the money back.

Generally, Chapter 7 Bankruptcy doesn’t eliminate the lien on your house.  That means yes, if you have a 2nd mortgage, and you filed for bankruptcy protection, you most likely will have to pay it back.

But, if your house is “underwater”, meaning that you owe more on your mortgages, by alot, you might be able to do something to eliminate the 2nd mortgage.    Chapter 13 Bankruptcy allows you to “strip down” a 2nd mortgage, but only if you owe less on the house than the balance on the first mortgage.  Then, we develop a plan to pay the mortgage in a percentage according to a Chapter 13 Plan.  Chapter 13 plans require you to make payments for 3 to 5 years.  The lien would be “stripped” only if you finish the plan by making all of the payments.

These are the general concepts.   It is important to remember that everyone’s case is different.  When looking to try to eliminate a 2nd mortgage, you need to contact an experienced bankruptcy attorney.

Daniel J. Winter
BankruptcyLawChicago.com
djw@DWinterLaw.com
312-789-9999
Offices in Chicago, Gurnee, Oak Lawn, and Skokie, Illinois.