Chapter 7 and Your 2nd Mortgage

Updated on June 13th, 2018.

Refinancing Your Second Mortgage

Yes, it may be an actual option. And as unlikely as it may seem or feel, if you have home equity now (at this writing in 2018) then a refinance may work but only if you have good enough credit. But how do you manage that after having filed a Chapter 7 Bankruptcy? Believe it or not, credit repair services use the same techniques outlined in the following Guide. The Attorney’s Guide to Credit Repair. It’s Fast, Easy and Guaranteed.

In fact many use the very same Guide. Follow this guide to repair your credit fast, including how to write letters to settle debts such as your 2nd Mortgage. Download it Now and Get Started Right Away with The Attorney’s Guide to Credit Repair. It’s Fast, Easy and Guaranteed.

Your 2nd Mortgage or Home Equity Line of Credit – Heloc

While it is true that you may be able to strip these off of your home in a Chapter 13, in a Chapter 7 you can’t, but, you may still be able to effectively ignore it (for a while) and keep your home.  However, the 2nd Mortgage or Heloc would still have a lien on the property.  You would then have to settle the lien or deal with it in some manner later on. Your 2nd or Heloc has two things over you

a) they have the promissory note that you signed promising to pay

b) they have a deed of trust or trust deed on the house which is a lien on the house also called a mortgage. 

If you have filed a Chapter 7 Bankruptcy, then the Chapter 7 discharges the Loan or Promissory Note, which means that the mortgage company or lending bank cannot collect money from you directly. They cannot sue you, garnish your wages, levy your bank account, or even ask you for money or anything like that.

If you still own the home, then you still have that 2nd Mortgage Lien called a Trust Deed or Mortgage on your property. Chapter 7 Bankruptcy does not remove that kind of lien from your house, not in the 9th Circuit Appeals Court’s jurisdiction. Therefore, if the value of the house is high enough, then your 2nd mortgage lender can foreclose that lien, but in order to do so, it must pay off the 1st mortgage and any unpaid property taxes first.

Some Things You Can Try Include, But Are Not Limited To: 

1.  Refinance Your Second Mortgage: Yes, it may be an actual option. But if you have bad credit, you will have to repair it first.

2.  If the Value of the house is higher than the balance on your 1st mortgage then you must deal with your 2nd mortgage now.  If it is lower than the balance on your first, then you don’t have to deal with them immediately, but you must deal with them eventually, because, remember, they have a lien on the house.

3.  If the value is relatively close to the balance on 1st mortgage then you will have to deal with the 2nd mortgage sooner rather than later because in not too much time, the value of the house will go up high enough for the 2nd mortgage company to be able to foreclose. If you cannot afford to settle it, you should consider trying a loan modification. 

4.  What most clients will do is make an offer to settle the 2nd mortgage lien in one payment, one time with no balance owing afterwards, and you must get that in writing from the bank before you mail your cashier’s check. You might have to take a massive 401k loan in order to be able to make such an offer, but if they take it, it would be worth it. 

5.  If you have previously filed a bankruptcy and then the 2nd mortgage lender cancels the debt and sends a 1099 for the “forgiven” balance next year, then you are able to deduct the amount because it was already previously “forgiven” or when you filed your chapter 7 bankruptcy and received your chapter 7 bankruptcy discharged. 

6.  Most clients will save as much as possible and then when they get a tax refund next year, they add that with the savings, and if possible, sell a car or some jewelry and then use that to make an offer to settle the lien. (Dear Reader, when I originally wrote this several years ago, most homes had much lower values and so it was so much easier to offer to settle such a second mortgage. However because home values have gone up considerably, it’s nearly impossible to do now.) 

7.  In any case, your Discharge Order from your Chapter 7 Bankruptcy prohibits  all kinds of collections.  Therefore, they cannot hound you, dunn you, or bother you, whether by phone, email or letters demanding payment of the loan or promissory note.  They have only one legal option, they can foreclose. It doesn’t mean that they won’t but knowing your rights, that they cannot, at least you can protect yourself.  REMEMBER however, that the 2nd Mortgage must pay off the 1st Mortgage in order to foreclose.

8.  If your home has significant value which it probably does, the loan modifications are an option to protect your home, and if necessary, selling your home as a method of preserving the home equity is also a great option. Not that those are the best options, but they are options. Additionally, Chapter 13 Bankruptcy may be a viable option as well.

THEREFORE, the probability of them foreclosing is lower and lower when the value of the house is lower than the balance on the 1st mortgage.  It’s simple math, they won’t pay off a $200K loan to get a $150K asset that they can then resell and only recoup $150K and they’d have to pay closing costs to sell it so they’d only net $120K. That would be a loss of $80K plus they would also lose all of the 2nd mortgage too which is probably another $50K or more on top of the $80K.

HOWEVER, when the 1st and 2nd are held by the same company and particularly if that company is a credit union, it may be possible that they’d foreclose anyway but if the payment on the 1st is getting paid, then it’s still not very likely.

Overall, when dealing with a 2nd mortgage, it’s risky, no matter what happens. A chapter 13 which would allow stripping off the 2nd mortgage, is risky too.  Even more so because your Chapter 13 Bankruptcy requires that you immediately go back to paying your regularly scheduled monthly mortgage payments on your 1st mortgage, and if the 1st was not yet modified on the date of filing the bankruptcy, then you’d be stuck with the unmodified mortgage payments. Also, most Chapter 13 Bankruptcies never get completed.  More than 70% don’t get a chapter 13 discharge because something happens that derails the payment plan such as a work stoppage or an illness, or even something unexpected such as a busted transmission. Stripping the 2nd mortgage off in a chapter 13 requires that you complete the three to five year payment plan, so it’s majorly risky because if you have a hypothetical plan payment of $350/mo and you pay it for 2 1/2 years and then if you cannot pay anymore and you don’t get your plan completed, guess what, you just tossed $350 x 30 months out the window.  That’s $10,500 that you’ll never get back, and that’s only if you get a payment that low to begin with.  Most are higher.

In Summary:

Offer to Settle Your 2nd Mortgage

So, in summary, making an offer to settle the balance on the 2nd after a Chapter 7 Bankruptcy, should aim to pay (I originally wrote 10% of the balance or less, but nowadays the percentage at this writing in 2018, must be much higher). However if the house is seriously upside down on the 1st mortgage already, you may be able to offer lower. But it does have to be paid in one payment once they accept and you must get them to accept it in advance in writing. You must not pay them unless you have it from them in writing that they will accept your settlement offer and that they will RELEASE the lien once they get the payment.

I’ll say it again just in case you didn’t hear me, they must agree to RELEASE the lien in writing once they get your payment. If they don’t agree to release the lien, don’t send the check.

Refinancing Your Second Mortgage

1.  Refinance Your Second Mortgage: Yes, it may be an actual option. And as unlikely as it may seem or feel, if you have home equity now (at this writing in 2018) then a refinance may work but only if you have good enough credit. But how do you manage that after having filed a Chapter 7 Bankruptcy? Believe it or not, credit repair services use the same techniques outlined in the following Guide. The Attorney’s Guide to Credit Repair. It’s Fast, Easy and Guaranteed.

In fact many use the very same Guide. Follow this guide to repair your credit fast, including how to write letters to settle debts such as your 2nd Mortgage. Download it Now and Get Started Right Away with The Attorney’s Guide to Credit Repair. It’s Fast, Easy and Guaranteed.

75 thoughts on “Chapter 7 and Your 2nd Mortgage

  1. How do I put off paying my mortgage payment month to month? Also, I will be receiving a trustee sale date next month, what can I do to put that off for another month?

    1. I think your questions sound like loan modification questions rather than bankruptcy questions. Bankruptcy stops foreclosure. However, if you’re not a position to pay the regular monthly payment on the mortgage then a chapter 13 won’t work for you. If you can make the regular payment on the mortgage but you’re still behind several months, you would have to be able to pay the arrears off over a 60 month period.

      That number will be higher than you think it is because there are going to be foreclosure fees, attorney’s fees, bankruptcy trustee’s fees all added onto the monthly payment. If you can pay that payment in addition to the regular mortgage payment, then you can keep your house.

      If you can’t make the mortgage payment or you can’t make the additional chapter 13 plan payment against the arrears, then a chapter 7 will also stop the foreclosure but only for a while. It could give you the time you need to complete a loan modification or a short sale.

      If you’re just interested in how can you stay there for two years free. I don’t know. Good luck.

  2. My parents filed for chapter 7 two years ago, but did not include their 1st and 2nd mortgage. I heard that you could possibly include your 2nd mortgage afterwards if you are unable to make your payments. My parents are upside down on the home and are retired and struggling to make their payments… Is there anyway to include the 2nd in bk after its been discharged?

    Any advice would be greatly appreciated.

    Thank you.

  3. I file a chaptar 7, i get discharge on 06/18/12, last pymnt on both was on dec/11 total value of my condo is about 170k (las condo was sell on this $) 1st mortg 134K and 2nd 132K (diferent banks), i doing short sale bout i really i dont want to do it, any where i go i will pay more just for rent. what should i do?? can I offert to settle the second and how$ will be good. also and the future i will not have problems???

  4. I have Modified my Second, finally, since taking so long (3 Years) the Second with Chase has written off my Helock Loan which is a Second of $127K with an attentional $40,000 cash out loan. It says on my Credit Report “Charge Off by Chase. Now Chase is calling me to make a settlement, they said it is to late for a Modification.
    My question is this, If they wrote off my loan, how can they now being asking for a settlement? Can they still have a lien against my property?
    I find this very confusing. I asked two different Bankruptcy Attorneys, but they did not seem to have a clear answer either! Hope you can help??

  5. We got 2nd mtg 2007, my husband lost his job in 2009. We could not afford to pay both mortgages especially when his unemployment ran out. we filed chap 7 2011. We go notice that our 2nd mortage company is going bankrupt. what does this mean for our 2nd mortgage? Does it go away? There is still a lean on the house, I assume. Who would we negociate with if we wanted to get out of 2nd mtg?

    1. Either you contact the bankruptcy attorneys for the bank and try to settle it as fast and furious as possible for as little as you can get away with or perhaps just ignore it and hope that the they lose the note that you signed instead.

      I cannot advise you either way, besides if you have a look at my DISCLAIMERS you’ll know that I only give medical advice to pet owners, legal advice to poker players and veterinary advice to furniture manufacturers.

  6. I filed chapter 13 3 years ago but am now unable to pay my property taxes and I have stopped paying my 1 st motgage because I have decided to walk. When should I turn my chapter 13 into a chapter 7, and will I be able to get out of the first by changing to a chapter 7 ?

  7. I filed Chapter 7 and wish to offer a settlement to clear my 2nd mortgage. It’s with a company called SLS and from what I have read online they sound pretty HARD to deal with. Do you recommend I tackle this myself or is there people that can be hired to handle it more effectively? Thank you!

    1. I really don’t know the answer to that. An attorney with experience settling 2nd mortgages could really be a big help. Asking someone who has never done it could be as effective as asking a housepainter to paint your portrait. Good luck.

  8. Hi ,
    Thank you for this article it really opened my eyes.
    I have a question about how do I start negotiating on the second mortage with the bank? PNC in this case. Lawer told me he would charge $2000 for it. Is it really possible to do it on your own?

    here is my situation I was discharged 02-02-2012 I have 100K on the first loan still paying and I want to keep the condo. load was 2nd loan is 40k thats the one I want to negotiate. my curent condo market value is 100k and falling. You think the bank may actually settle for 10-15% ?

    Thank you for your help.

    1. It can’t hurt to try. I can’t say if using an attorney would help or not because I don’t know your attorney. If you use the right attorney, then can help a ton. If the wrong attorney then you throw your money down a hole never to be seen again and nothing happens and you probably can’t prove whether he ever even called the bank or not.

      Good luck.

  9. I recently completed a modification on my 1st, and my 2nd was dismissed by the bank. I did receive a 1099 for the dismissed amount on the 2nd. I am assuming that I am going to have to pay taxes on the dismissed amount, and therefore, will owe alot of money this year in taxes. Will filing Ch7 help me avoid paying taxes on this?

    1. Disclaimer: This is Rocket Science, it is not legal advice and you are not my client. This information may be used during your next physical exam at your doctor’s office only.
      If you have already received a 1099 then the taxable event has already taken place.
      What might help you is Internal Revenue Code 108(a)(1)(E).

  10. I went thru a Chp 7 BK in January 2012 and it was discharged in May 2012. I also went thru a separation during the year and continued to pay the 2nd mtg while the wife kept the house and the 1st mtg. I had to stop paying the 2nd mtg about 5 months ago due to reduced income by my employer. I have talked to the 2nd mtg (HFC) about a settlement since this loan was in the bk discharge and they have a list of items they want from me to process a settlement. I understand that the loan was discharged off in the bankruptcy and they cannot collect on it any further. What I don’t know is if I settle the lien with them: (a) is the discharged loan amount still considered a charge off and can they post a charge off to my credit after the fact? (b) Is the discharged amount considered a write off and can they send me a 1099 with the difference from the settlement and loan amount and would that be considered income for tax purposes? (C) If I settle with them and have them release the lien, what else can they do after that? I ask these questions because from the research I have done I think that if a 2nd mortgage is discharged off in a 7 bankruptcy, the loan is dissolved and they can only accept or reject an offer of settlement to satisfy the LIEN. Is this correct? Or can they still hurt me with the balance of the loan on my credit after the fact? Thank you so much in advance if you can help me with this.

    1. That’s a lot of excellent questions:
      DISCLAIMER: This answer is for entertainment and medical purposes only and cannot be in any way regarded by anyone as legal advice and you are not my client.
      A) You probably can contact your credit reports and the creditor and request that it be listed as “Bankrupt” or “Account Included in Bankruptcy” on your credit reports.

      B) No, but even if they do, you don’t have to pay it. Have a look at Internal Revenue Code Section 108(a)(1)(A).
      “26 USC 108(a) Exclusion from gross income
      (1) In general
      Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if—
      (A) the discharge occurs in a title 11 case,”

      Because you already filed a bankruptcy and you have already received a bankruptcy discharge in 2012, you should list it on your 2012 tax returns now and head them off at the pass. You will get an exclusion for any amounts discharged, which is in fact, all of it. Additionally, subsection (E) might also apply if the bankruptcy hadn’t already happened.

      C) That’s correct, in terms of what can they do about collections. How it should be reported is as a bankrupt account.

  11. THanks David for this website. I read a lot about this issue and your blog is pretty clear and easy to understand.

    In 2008 my wife and I filed for chapter 7. We kept paying the first mortgage but not the second. The lienholder then was GMAC but now a new servicing company has taken over. We have equity in our home, so I am afraid they will foreclosure in the near future. Can chapter 13 stop this and do I have to pay the full amount I owed? I was told there is a 5 o 6 year period to pay back our debt but what happens if we can only make small payments and at the end of the 5 years we still own money?


  12. Chapter 7 bankruptcy completed in November 2008. The 2nd lien survived the bankruptcy. It was sold to another party (so it is not held by our 1st mortgage holder.) They have sent a letter regarding the lien. We are completely upside down on the 1st – the loan was modified a year ago and we have not missed a payment. But we owe at least $100K more then what it is worth.) We want to settle to get the lien removed. You state 10% of the debt (our 2nd is about $60K) when I called the company to find out what our options are, the rep told me they usually want 25% to 30% for the lump sum payment. I realize they are going to tell me a higher amount. Can you tell me is 10% something they will accept? is it a reasonable amount for us to offer them? If they don’t accept I understand we have a Chapter 13 option to strip the lien. Can we file that Chapter 13 to strip the lien if our income would allow us to make payments? (our income has recovered this past year and a half.) Thank you! Great article!

    1. Remember that they cannot call you to ask for payment. The permanent injunction created by the Discharge Order prevents that. However, you can hound and harass them like a collection agency’s pit bull all you want to. Pretend you are a collection agent looking to make them pay up with a big discount. Call them hourly if you like and see how they feel about it like they were doing to you until you filed your bk. Or more reasonably, at least every couple of days. Ask them to take 10% and give you a release and ask them to give written confirmation that that is what they will do before you ever cut the check. I don’t know how much they’ll take. But if the house is sufficiently upside down on the first it should be lower not higher. HOWEVER, you are now at this writing in an uptrending market. So that could be a problem for you. Track the value of your house and keep watch how much it will sell for. If it goes too high too fast that could hurt your negotiations.

      Good luck

  13. We had a chapter 7 BK in March 2012. We wanted to keep our home, so continued making the pymts. We also had a 2nd mortgage and the balloon payment was due at the same time. Our 2nd mortgage is for 100K and the bank is difficult to work with. We made the decision to keep the loan, and a new loan was written, so now it is not covered under our chapter 7 BK. We now want to get out of the house. We owe 171K on 1st mortgage and 100K on second. It is worth 250K. If we sale the house, we won’t have enough to pay both mortgages, but we can’t walk away because our 2nd is no longer discharged under our BK. Is there anything we can do? Thanks

  14. We had Chapter 7 in 2010. $50k 2nd was discharged but we continue to make minimal $200 monthly payments. Balloon payment is coming due February 2014 not sure how we can pay it? The payments are basically interest, should we be paying it or saving it. First mortgage is $366,000 about what the house is worth. Thanks!

    1. I would recommend (not legal advice) that you aim for an offer to compromise. Offer to settle it, and find a way to come up with some money to pay them off in one lump sum.

  15. Hi, my husband and I went through a CH 7 bankruptcy in 2009. Basically, all the debt we had was through some businesses we (he) owned. I think because it was a CH 7 that technically our mortgage (?) and our HELOC were discharged. But, the thing is, we never actually stopped making the payments on either. So no missed or late payments on our house, we are still in it. My question is that our credit report shows these accounts as “discharged in bankruptcy” as though we stopped paying. Is there anything we can do to get the credit reports to reflect the fact that we are still in good standing on both of these? Get a letter from the bank (Wells Fargo) that we pay? Any advice is appreciated. Joy

    1. There’s a problem you have that probably cannot be fixed. We bankruptcy attorneys never recommend that anyone ever reaffirm a mortgage. The reason is that it ties you back to the loan. Sure that would allow the bank to list as good debt, however, on the off chance that if your home insurance were cancelled and the house is burnt down, you’d owe those mortgages but have no insurance and no house to use to pay them. At that point you’re in a world of trouble. Of course, when is a house most likely to burn down? Right after the insurance lapses. I don’t know how that happens, but it does. Good luck.

  16. I’m not sure where I stand with Wells Fargo, this is my situation. I have a first with Chase that I am current on; 5% fixed Fannie May with $218K owed, never missed a payment. I had/have a second (Heloc line of credit) with Wells Fargo that I stopped paying on almost three years ago; $211K interest only at prime minus 3/4%. I filed Chapter 7 bankruptcy about two and a half years ago, discharged in May 2011. I haven’t heard anything from Wells since the BK. I started reading this web site a few months ago. I read the part about sending a letter to Wells to tell them that they can contact me. I did that about 5 or 6 weeks ago with no response from Wells. I realize this is not a long time in the renegotiating world. The problem is that in the Bay Area Ca. where I live, the housing market has made a very sharp and recent turn around. A coworker of mine put his house up for sale and sold it in a week for $50K above his asking price, cash! He could have taken $65K above asking, but didn’t want to wait. I’ve heard several similar stories in my area. I would like to stay in my house and renegotiate with Wells, but I don’t want to look too eager. My house had been appraised (by Zillow) for $280K for the last couple of years. In the last two months it went to $290K then $300K. You can see where I’m going with this. I wasn’t worried about Wells pushing for a foreclosure when the market was soft and they could only clear $40 or $50K. Now that they can realize $100K, I’m getting a little nervous. I’ve briefly looked into loan modifications, and it looks like they would have me refinance for 30% of my gross ($110K annual). I’m sure $2800 a month seems affordable to them, but this is a high cost of living area. I would have a hard time making ends meet here with 50% of my take home pay going to my mortgage. Walking is an option, but then there’s the question of being able to get back in the market with it as hot as it’s been lately. This is my primary and only residence, not a rental. Here are my questions:
    Can Wells (the second) foreclose and sell my house while I’m current on the first?
    If so, how much time do they have to give me?
    Do they have to give me a chance to renegotiate before foreclosing?
    If I were to make them an offer, do I need cash? I could come up with $40 or $50K out of my 401K, but not much more than that.
    Do/will they refinance the negotiated amount?
    What other options do I have?

    1. For a 2nd to foreclose, it just has to pay off the 1st. It doesn’t matter if you’re current or not.

      I think the problem is that you may not know who the current holder of the mortgage is. It might be Wells anymore.

      But once you do figure it out, then trying to compromise the debt is an excellent idea except that in a rising market, they might not be interested in taking an offer. Much as PNC Bank is no longer accepting offers to compromise on 2nd mortgages, clearly it’s unlikely that they’re the only ones.

      David L Nelson
      Attorney at Law

  17. We filed bankrupty in 2009, did not reaffirm either 1st or 2nd note. We continue to pay the 1st but since both were included in bankruptcy we do not pay the 2nd. The 2nd HELOC has been sold then sold again. From the county recorders office, it does not appear the name to either bank that is suppose to hold a lien has been amended or recorded. The first note has also been sold and resold and the lien showed the very first bank we took the mortage out with, bnt nothing about either of the new owners. How can I find out if through some loophole I have no liens on my home?

  18. We filed Ch7 in 2010. We owe 140k on our first and 72k on our second. The first mortgage is not on our credit report but the second mortgage is. We have made all payments on both mortgages. We are currently upside down around 30k. We are looking to move to another state so losing the house would not be an issue, but we are not sure how bad our credit, that we have started rebuilding, will take a hit if we allow it to be foreclosed or offer a settlement on the second. Any suggestions on how to proceed?

    1. Do a Short Sale, it would have the least impact on your credit. A foreclosure is the worst thing that can happen to your credit short of your own death.

  19. We filed BK, chapter 7 in 2006 its been discharged. We never re affirmed our second mortgage of $60,000. Our first mortgage was and we are still in the home and current on it. We want to sell it within a year to downsize, we need too. Our first mortgage balance is $198,000. The value of the homes in our neighborhood puts us at about the $235,000 to $245,000. Is there any chance our second mortgage bank (which was National city and now is PNC), would take a offer? We believe theres a lien on the property from them and of course, we need that off in order to sell! We heard a lot of second mortage banks are taking 10%, if they need more, we wont be able to pay much more. We are living from paycheck to paycheck with no savings.
    Can they foreclose on us since we have some equity in it, we need hear from them and its hard just getting someone at PNC to find the account!

    1. While they could foreclose, they probably won’t because the value of the house at $235,000 is only a partial payment on the balance on the 2nd. They’ll wait until the value of the house is high enough to cover the first, 2nd, and the costs of sale before the foreclosed.

      What you could do is a chapter 13. You pay the arrears on the 2nd mortgage through the chapter 13 plan and at the end of the plan your 2nd is current again and there is no longer any risk of foreclosure. Alternatively you could probably qualify for a loan modification on the 2nd mortgage. Try calling Tony Sobak at

  20. My comment is the one before this one. UPDATE: Just called PNC and they said they are not going to take anymore offers or settlements! We would have to put our house on the market then when we get a offer, call PNC to see if we can accept the offer. Thats a short sale .. correct? They would take any proceeds above what the first mortgage balance is! So, is this correct, can they do that? Not give us a settlement and make us do a short sale to sell?

    1. When you have a 2nd mortgage, a chapter 7 bankruptcy discharges the promissory note, but does not have any effect on the deed of trust which is the lien on the property. You’re stuck with the lien. If the bank is no longer settling 2nd mortgages then you’re stuck with the deal you originally signed when you signed the deed of trust.

  21. My Chapter 7 BK was discharged in 2012. I have a 1st and 2nd mtg and included my 2nd mortgage in the BK and completed a modification on my 1st mortgage after the BK was discharged. I have not reaffirmed the 2nd mortgage but I have continued to make the payments on time. I now want to sell my home and want to know if I have to settle the 2nd mortgage with the lender if the lien was included in my BK and I never reaffirmed the mortgage with the lender?

    Any advice would be appreciated.

    1. When you file a chapter 7 bankruptcy you discharge the promissory note not the deed of trust. So the loan is discharged but you still have the lien on your house and therefore, yes, at some point you must settle that lien. Do you already have a real estate agent to sell the property?

  22. Husband got BK ar7 discharge over 3 yrs ago, which included 1st mortgage and LOC on the house with Bank of America. Continued to pay both for 1 year after discharge and stopped due to losing good job. Settled LOC and got release of lien. We are now in the final stages of negotiating a short sale with bank. 1st mortgage was sold to investors through Fannie Mae. Have letter from bank stating 1st mortgage had been “frozen” at 175,400 after last mortgage payment was made. Now bank tells Title Co. handling closing that the actual balance of 1st mortgage is 205,000 although the drafted HUD-1 shows 175,400 pay off. I thought they could NOT legally add past due payments, penalties, or interest after we stopped paying. Is it not a violation of BK Law ?? Thanks for your input.

  23. Hi and thanks for the information,

    I have a property that is worth about $340,000, just modified my 1st mortgage with BOFA down to $250,000, my second was with BoFA too which was sold to GREEN TREE, they are asking for $27000 to settle it in full, and i agreed on the phone they faxed the agreement to me and wanted the payment right away, but my concern is that the agreement was not sgned by any any body, besides it just says that they offer this much and if the offer accepted , they will settle my account in full and will report to show it as settled as less than full, i am very worried that they are playing with words here and they didn;t mention any thing about releasing the lien on my preperty.

    besides, I have some credit card debts and one of them has a judgement against me, should I wait until after BK and then try to modify my 2nd mortgage. what happens to my credit card debts after a few years.
    Please help me and my family!


    1. You should call me 951-200-3613 about filing your bankruptcy. If you’re planning to keep the house then maybe you should complete the settlement of the 2nd mortgage while they’re willing to do it. A lot of 2nd mortgage companies are no longer taking settlements because the markets are rising so if you wait you might miss the opportunity. (THIS IS NOT LEGAL ADVICE, AND THEREFORE YOU MUST NOT RELY ON IT). So, if you could get them to also state that they would release the lien and sign it too, that would really be optimal. Of course, if they won’t you might want to take the offer anyway. You should meet with an attorney to have your agreement looked at.

  24. Great article and info, thank you. Our chapter 7 was discharged in 10/2011. 1st ($293,000)and 2nd ($150,000) were included and not reaffirmed. We have stayed in our house since then, making our regular monthly payments to Wells Fargo for the 1st, and small $50 monthly payments for the second. We want to stay in the home. Our 2nd was sold to SLS from First Horizon almost immediately after the discharge.
    Wells Fargo has contacted us w/i the last week offering a rate reduction refi for the 1st, and we received a letter from SLS stating that First Horizon has bought back our 2nd.
    With these devlopments, I am not sure what would be the best course of action for us. Can we re-fi the 1st and basically ignore the 2nd? Is that going to be like stirring a hornets nest? I understand the 2nd will still have a lien on the property, but we don’t have any plans to sell w/i the next 3 – 5 years. Btw – the current value on the home is roughly $393,000. Thank you for your information.

    1. If you’re not in California, I can’t help you, if you are, you should call me. DISCLAIMER: THIS IS NOT LEGAL ADVICE AND YOU ARE NOT MY CLIENT. The following is for educational and medical purposes only. It might also improve your tennis game. That said, there are a couple of things you might try, settling the 2nd mortgage in which case call my good friend Tony Sobak, which would take some money. Or possibly file a chapter 13 bankruptcy. A chapter 13 can allow you to strip the 2nd mortgage lien if the balance on the 1st mortgage is high enough, which it doesn’t sound like it is, or it could allow you to pay off the 2nd over a 5 year period. That could be a pretty rough payment to make but if its only for 5 years, then the 2nd would be paid off and gone in 5 years. Sounds like you should take the refi on the 1st and work on a loan modification on the 2nd mortgage, in which case call Tony Sobak to ask about the loan modification on the 2nd.

  25. Fantastic site here – you, sir, are a good one.

    My wife and I just received our discharge letter for Chapter 7 Bankruptcy. Our first mortgage is owned by a Freddie Mac company and it was acquired on August 08, 2003. We currently owe $220k on this mortgage. We did not reaffirm the mortgage after the discharge, however we do continue to make payments and have not missed a single one since we purchased our home in 2002. This is our primary residence and our intentions are to stay in the home and continue making payments. The home may be worth approx. $340k, according to an online estimate.

    Our second mortgage is owned by Wells Fargo; we owe $110k. We had an automatic payment plan setup before the bankruptcy occurred, but since the filing, the automatic payments have stopped and we have not made a payment. I contacted the bankruptcy department of Wells Fargo and they mentioned that the current status of the HELOC is “non performing account”. I am preparing a settlement letter to submit to them, for what we could currently come up with in one lump sum; 5%. There is potential that a family member could help us match that to get closer to 10%, if they were to refuse the 5% offer. I am also preparing a hardship letter to go along with the settlement letter.

    Does this sound like the right move? Should I go another route?

    1. If you’re not in California, I can’t help you. DISCLAIMER: THIS IS NOT LEGAL ADVICE AND YOU ARE NOT MY CLIENT. The following is for educational and medical purposes only. It might also improve your tennis game. That said, there are a couple of things you might try, settling the 2nd mortgage in which case call my good friend Tony Sobak, which would take some money. Or possibly file a chapter 13 bankruptcy. A chapter 13 can allow you to strip the 2nd mortgage lien if the balance on the 1st mortgage is high enough, which it doesn’t sound like it is, or it could allow you to pay off the 2nd over a 5 year period. That could be a pretty rough payment to make but if its only for 5 years, then the 2nd would be paid off and gone in 5 years.

  26. Hi David,

    My wife and I filed chapter 7 and it was discharged. The first mortgage was modified after discharge and our loan and now current with 100k deferral at the end of a 40 yr term. . The second mortgage is a year behind and was included in the bankruptcy. Although I am still significantly upside down on the first and second. The first is affordable. However I want to settle the second and have the lender release the lien. Can you help me with this? The second is a heloc with the same lender as the first.

  27. Ok here is my situation… I had 2 properties. 1 is a rental (used to be my primary residence) and the other WAS a 2nd home that was just Foreclosed on (the bank bought it back at Sheriff’s Sale.) I am going to file a Chapter 7 so the lender cannot come after me on the 2nd home for any amount owed etc…
    Now I have 2 mortgages on my rental (used to be my primary home.) The 1st mortgage balalnce is about the same amount as the value of the home. The 2nd mortgage is offering me a Settlement of 10% of the amount. I owe $79, 860 and they are offering a Settlement In Full ($7,960) along with a LIEN SATISFACTION for the 2nd mortgage. Do I pay the settlement offer NOW or wait until I file for Chapter 7? The expiration date is early July so time may be an issue. My goal is to NOT pay any income taxes on the difference between the amount I owed ($79,860) and the settlement offer of $7,960. The 2nd mortgage co. said they will send me a 1099 for the difference of approximately $71,000. How do I avoid this?

  28. I filed for a Chapter 7 in 2008. My second was discharged but I kept paying on it until 2012, but just couldn’t do it anymore so I stopped. My house is worth $195,000.00 and my first mortgage is $180,000.00. Would you please advise me on what I should do regarding my 2nd mortgage. I applied for a modification but the offered to only cut $40.00 off the monthly payment, and that is no help at all. So, consequently I have not been paying on the 2nd for about 6 months. Any help would be gratefully appreciated.

    1. If you’re not in California, I can’t help you, if you are, you should call me. DISCLAIMER: THIS IS NOT LEGAL ADVICE AND YOU ARE NOT MY CLIENT. The following is for educational and medical purposes only. It might also improve your tennis game. That said, there are a couple of things you might try, settling the 2nd mortgage in which case call my good friend Tony Sobak, which would take some money. Or possibly file a chapter 13 bankruptcy. A chapter 13 can allow you to strip the 2nd mortgage lien if the balance on the 1st mortgage is high enough, which it doesn’t sound like it is, or it could allow you to pay off the 2nd over a 5 year period. That could be a pretty rough payment to make but if its only for 5 years, then the 2nd would be paid off and gone in 5 years.

  29. My husband filed Chap 7 in 2/2009. His 2nd was included but he kept making the payment for fear of foreclosure recourse.
    It seems, according to your article, he should not have been making those payments all these years.
    We are considering refinancing his home loan and it will be hard to get LTV of 80% if we include both. His Credit is finally up high enough to refinance the loan. We don’t want to screw it up.
    Should we offer a settlement to US Bank of 10%? Should he keep paying the 2nd?
    Any suggestions.
    Thanks so much for your article.

  30. hi, I’m about to file for chap 7,but I’m worry that I’m not current on my 2nd mortgage 0f 65k, I’m current on my 1st mortgage which I modified about 6months ago which I own 445k the value in my property is between 104k, 420k range in my area according to a BPO, my question can I lose my property? should I proceed with the file, or make some arrangements with time resolution
    first that’s hold my debt? thanks for your time and help

    1. Call me for a consultation or to set an appointment for a consultation 951-322-5998 I can file your case for you anywhere in the Southern, Central and Northern Districts of California. If the value of the house is low enough you could possibly remove the lien off of your house. We should talk.

  31. I’m currently starting my ch7. Behind on 1st (124000) by 8 pmnts and trying to work a loan modification. Behind on 2nd (20000) same 8 pmnts. Value around 120000. Should I reaffirm with 1st and not 2nd. Then after dicharge neg with 2nd if 1st does the loan mod. I’m in Georgia.

  32. Hey,ya…ok, filed a chapter 13 but had to turn it to a chapter 7, turned house over to first mortgage bank….thought i was done. I get a call from my 2nd saying chapter 7 doesn’t remove my obligation to them, then a month later I receive paperwork saying they sold my loan to a new company who are now sending payment letters asking for #89.000 now with a balance of $198000. I don’t have the house anymore, my chapter 7 lawyer told me this would be gone, now isn’t answer calls or emails. So, what to do? can I fix this? can these people move money that was under a chapter 7 to new people…can they garnish my wages?

    1. Assuming you are from San Bernardino area based on your message: Chapter 7 discharges your personal obligation to pay the debt. If they continue collecting the debt, you can sue them in bankruptcy court for contempt of court for violating the discharge order which prohibits collections. Of course once the house is gone, if the lien is extinguished then there is no lien. If they do have a lien, it’s not your problem it’s the 1st mortgage bank’s problem.

      Contact your attorney by letter and send him $100 and ask him to write a letter to them explaining that the debt has been discharged and that they are violating the discharge order which prohibits collections after a discharge. Every time they try to collect, write to your attorney and explain every new thing they do to you each time they do it. Send a new letter explaining each new collection activity. When they right to you, send him the letter. When they call, send him a letter and explain what they said. If they sue you, send him the lawsuit.

      If he writes them a nasty letter explaining that they cannot collect from you, be prepared to pay him to write to them on your behalf.

      You could certainly write them that letter explaining it to them for free and send a copy to your attorney. When you mail it to the creditor, send it via certified mail with a return receipt.

  33. Thank you for the information! I want to remove the lien on the 2nd and don’t know where to start. My husband and I had filed Chapter 7 which was discharged in Jan 2013. We had the 2nd mortgage discharged in the bk. The 1st loan is 456k and the 2nd was 97k. The home is currently valued at 425k. Both loans was by the same bank but know the 1st was sold to a different bank. I have not received any information/request for settlement from the original bank for the 2nd. Any advice on how to go about starting? Is there a particular type of attorney that specializes in this?

  34. Please help .about 12 yrs ago we filled chap7 .we have been making payments all along ok. The mortgage company has accepted all out payments the last 12 yrs and we are current. Now that my credit score is 710 i want t o refinance. Can i go to another bank ..we on 129 k we only owe 60k ..also what happens when we make our last payment

  35. My husband did a Chapter 7 that stripped all liens from our house except for the 1st TD and re tax. Then he immediately did a Chapter 13 with just the secured debts of the 1st TD and the re taxes. He is current on all payments to both the BK Court and the mortgage. However, despite the fact that the 2nd TD lien was voided in the Chapter 7 BK, the leinholder refuses to file a reconveyance. What are our options?

    1. You cannot actually “avoid” a second mortgage deed of trust with a Chapter 7 bankruptcy in California or in the 9th Circuit Court of Appeals Jurisdiction at this time. So that’s why they won’t release the lien.

  36. I am going to ask but not really expecting a reply. I had a predatory loan from Countrywide in 2003 based out of the San Jose area for a property located in a nonjudicial foreclosure state Idaho, which they were not licensed to do business in. This was a Heloc which in effect became a second when I refinanced the first and they agreed to become a second. I filed a Chapter 7 in 2005 and the second never appeared in court when the first asked for a lift of the automatic stay. The Judge granted the discharge and said the second could not execute as long as the first was paid.
    Countrywide defaulted on the loan in 2003 when they refused a check on the Heloc that I had written despite their being funds avaliable in the Heloc so I never made a payment on the Heloc. After discharge they robo signed and not even correct transfers between banks to numerous different entities. They have lost the original documents and now only have copies that I provided. The new Servicers are now trying to collect even though the servicer before the current one said and put on statements that the Statute of Limitations has ran on this Heloc and therefore they could not collect, now they are saying that the full amount is due. How do I get them to release the lien on property since it was discharged and the statute of limitations has run?

    1. Statutes of limitations on deeds of trust are ridiculously long. I don’t know how long in Idaho, but in California I believe the statute of limitations on a deed of trust is 66 years.

  37. We purchased a timeshare back in 2006, they convinced us to take a second mtg out to pay for it with a lesser interest rate. We did this, In 2010 my husband got cancer. In 2017 we were forced to give the timeshare back because we couldn’t afford the maintenance fees. Now we are stuck with a $36,000 second mortgage on a timeshare that we no longer have. What can we do?

    1. If you want to keep the house, you have to pay the second mortgage. If for some reason the value of the house drops below the balance on the 1st mortgage then it may be possible to file a chapter 13 (consolidation bankruptcy with a 3 to 5 year payment plan) and remove / avoid the 2nd mortgage or deed of trust that way.

  38. We have a HELOC that was discharged in a chapter 7 bankruptcy 8 years ago. We have since paid off our primary mortgage. HELOC balance is $55,000 and there is a title lien on the home. Home value is approximately $175,000. We thought about offering to settle with the HELOC company yet don’t want to expose ourselves to foreclosure. Do you have an opinion on our situation?

    1. Many prefer to let sleeping dogs lie. Another option might be to put the $55,000 into a chapter 13 bankruptcy with a monthly payment plan for 60 months or a payment of about $1000 per month. I don’t know what you should do.

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