Can I lower the principle amount on my first mortgage by filing chapter 13 bankruptcy? 28 Answers as of July 03, 2013

I have a first mortgage for $717,000 and a second mortgage for $102,000. My home is worth $517,000. I am current on the first after a loan modification, but I have not been paying the second and now I just received a summons from the servicer company. They are suing me for the balance. I can't afford to pay them, so is my only option to file bankruptcy so they don't levy my bank accounts? I am self employed so they can't garnish my wages, but I think they could levy. If I filed chapter 13, I think my second mortgage would go away, but what about the unsecured principle on my first?

Ask a Local Attorney. 100% Anonymous. Free Answers.

Free Case Evaluation by a Local Lawyer: Click here
Heupel Law
Heupel Law | Kevin Heupel
Given your home value, yes, you could remove your second mortgage by filing Chapter 13. It's called a "strip off" and be sure to hire a bankruptcy attorney to file your case so it's done correctly.
Answer Applies to: Colorado
Replied: 11/4/2011
Philip R. Boardman, Attorney at Law
Philip R. Boardman, Attorney at Law | Phil Boardman
You should be able to completely strip the second mortgage since there is no equity to cover that mortgage. The first mortgage will not be affected.
Answer Applies to: Virginia
Replied: 11/4/2011
LAW OFFICE OF MARGARET L. EVANS, PC
LAW OFFICE OF MARGARET L. EVANS, PC | Margaret L. Evans
With a $200,000.00 difference between what its worth and the 1st mortgage, I'd SERIOUSLY consider giving up the home in a Chapter 13 so you can get a "fresh start" and a smaller, more affordable home. You may have to rent during the pendency of the bankruptcy, but you could save a substantial sum of money up for another home when then bankruptcy is over.
Answer Applies to: South Carolina
Replied: 11/4/2011
The Law Offices of Kristy Qiu
The Law Offices of Kristy Qiu | Mengjun Qiu
There is no such thing as unsecured principals of a first mortgage on your primary residence. You can strip the second mortgage if what the property is worth is less than what you owe on your first mortgage. However, the bankruptcy code specifically prohibits cramming down a first mortgage of a primary residence, it can be done for investment properties, but not your primary residence. Otherwise every home owner in America who still owe mortgage would be filing for bankruptcy. Also, all the interests and escrow payments accumulated since the day you stopped paying will remain with the property even in a bankruptcy, that means that you're stuck with them if you want to remain in the property.
Answer Applies to: Florida
Replied: 11/4/2011
Bankruptcy Law Center
Bankruptcy Law Center | Bill Zurinskas
In Colorado chapter 13 bankruptcy, you may be able to strip the 2nd mortgage, but not the first. Congress is currently considering a principal paydown bill to allow you to cram down the first mortgage to FMV.
Answer Applies to: Colorado
Replied: 11/4/2011
    Lake Forest Bankruptcy
    Lake Forest Bankruptcy | Anerio V. Altman, Esq.
    No. Hands down without question, no. Bankruptcy Judges are prohibited from modifying the rights of first lienholders on residential properties. Anybody who tells you otherwise knows absolutely nothing about Bankruptcy. You can discharge your personally obligation to the 1st, but you may not modify that loan. Now that said, youve got some weird facts in your question and I think you missed a step explaining what happened. You should sit down or actually speak with an attorney.
    Answer Applies to: California
    Replied: 11/4/2011
    The Law Office of Darren Aronow, PC
    The Law Office of Darren Aronow, PC | Darren Aronow
    Your second mortgage would not go away, your attorney will have to make a motion to avoid that lien as unsecured debt. As far as your first mortgage, it will depend on which district you are in and who is your judge to see if they will allow you to cram down your first mortgage on a primary residence. The case law varies.
    Answer Applies to: New York
    Replied: 11/4/2011
    Law Office of Lynnmarie A. Johnson
    Law Office of Lynnmarie A. Johnson | Lynnmarie Johnson
    You are right that using the values that you have given, your second mortgage would be treated as unsecured, and would basically go away. However, the bankruptcy court has no authority to lower the principal on your first mortgage. So unless the law is changed, you are stuck!
    Answer Applies to: Michigan
    Replied: 11/4/2011
    Charles R. Nettles - Attorney at Law
    Charles R. Nettles - Attorney at Law | Charles R. Nettles
    The last time that I checked, which wasn't that long ago, you would not be able to change the principal balance on the mortgage through a bankruptcy.. As far as what can be done with the 2nd, you present a couple of issues. There is a distinct possibility of lien stripping in some jurisdictions but Texas is not one of them. If your 2nd mortgage is suing, then in all likelihood, there object is to foreclose on the property. I think a levy on your bank account is your least concern. It sounds to me like you are in the process of losing your home. A Chapter 13 can stop either a foreclosure action or a lawsuit so I think that it would be worth looking into.
    Answer Applies to: Texas
    Replied: 11/4/2011
    Law Offices of James Wingfield
    Law Offices of James Wingfield | James Wingfield
    Ch.13 prohibits the modification of your primary mortgage on your residential real estate. So, unfortunately, you will be unable to cram down your first mortgage in a Ch.13 bankruptcy. The good news is you should be able to strip off the second mortgage entirely (provided that the values and balances are as you described) in Ch.13, as second mortgage that are wholly unsecured can be avoided, and the underlying balance due under the note will be traded as unsecured debt. However, you MUST get to the end of your Ch.13 plan and receive your discharge for the avoidance of the second mortgage to be effective. If you are set on trying to reduce the principal on your first mortgage as well you could consider Ch.11 which does allow such an outcome. However, you should be forewarned that Ch.11 is a very expensive and complicated process. Many consumer bankruptcy attorneys are not proficient in Ch.11, so you will want to shop for your attorney even more carefully than you would for a more common consumer bankruptcy attorney who practices in only Ch.7 and Ch. 13.
    Answer Applies to: Massachusetts
    Replied: 11/4/2011
    Weber Law Firm, P.C.
    Weber Law Firm, P.C. | William Weber
    No. The terms of a first mortgage being occupied as a residence or homestead cannot be modified by changing the amount of the payments, interest rate or anything else. You must pay the ongoing payment according to the terms of the mortgage if you want to keep the home. You can change the terms of mortgages occupied by a third person and used as a rent house.
    Answer Applies to: Texas
    Replied: 11/4/2011
    Carballo Law Offices
    Carballo Law Offices | Tony E. Carballo
    No, you cannot alter the first mortgage on your home in any bankruptcy case. Congress said long ago that no principal or interest reduction on first loans. Call your Congressman since there have been many proposals to allow that but so far everyone has been knocked out mostly by Republicans in the House and Senate.
    Answer Applies to: California
    Replied: 11/4/2011
    Benson Law Firm
    Benson Law Firm | David Benson
    Most, if not all, lenders I deal with will not allow you to lower the principal on any debt and a bankruptcy court does not have the authority to order a reduction in the first mortgage on your residence. You can, however, strip the second mortgage in a Chapter 13 bankruptcy. I would suggest you not wait until the mortgage holder gets a judgment against you.
    Answer Applies to: Ohio
    Replied: 11/4/2011
    Moore Taylor Law Firm, P.A.
    Moore Taylor Law Firm, P.A. | Jane Downey
    You can't alter the principal balance on your first mortgage for your residence in a 13.
    Answer Applies to: South Carolina
    Replied: 11/4/2011
    Canty Law Firm
    Canty Law Firm | Timothy Canty
    You can't change the terms of your residential mortgage in Chapter 13 - it's specifically exempted in the Code. You may be able to strip off the 2nd in a chapter 13 if the home is worth less than the first. You need to consult with experienced bankruptcy counsel to see if you qualify for either Chapter 7 or Chapter 13.
    Answer Applies to: Colorado
    Replied: 11/4/2011
    Colorado Legal Solutions
    Colorado Legal Solutions | Stephen Harkess
    To date, Congress has refused to allow the bankruptcy court to adjust secured mortgages on a primary residence. You could strip the second mortgage in a Chapter 13 with the numbers you outline, but the fist mortgage cannot be changed. Further, the unsecured amounts on your mortgages may push you over the debt limit for a Chapter 13 and require you to file under Chapter 11 to get any relief.
    Answer Applies to: Colorado
    Replied: 11/4/2011
    Dan Wilson Bankruptcy
    Dan Wilson Bankruptcy | Dan Wilson
    If your 2nd is totally unsecured you can strip the 2nd. That means your house is worth less than the 1st mortgage balance. I suspect this is the case as the 2nd mortgage lender is suing you rather than foreclosure. You cannot strip in a Ch 7 so you will have to file a Ch 13. You cannot discharge the unsecured portion of your 1st.
    Answer Applies to: Colorado
    Replied: 11/3/2011
    Law Offices of Kenrick Young
    Law Offices of Kenrick Young | Nicholas Lazzarini
    The 'cramdown' provisions you are referring to that could eliminate your unsecured second mortgage does not apply to first mortgages on you primary residences. You may be able to negotiate payment, interest or principal with your first mortgage lender. You should consult a bankruptcy attorney who can negotiate with your lenders on your behalf to get a Chapter 13 plan confirmed.
    Answer Applies to: California
    Replied: 11/3/2011
    The Schreiber Law Firm
    The Schreiber Law Firm | Jeffrey D. Schreiber
    The second may be subject to being converted into an unsecured claim by a lien strip procedure. However bankruptcy courts cannot alter the terms of a first position lien secured by your residence.
    Answer Applies to: California
    Replied: 11/3/2011
    Gregory J. Wald, Attorney at Law
    Gregory J. Wald, Attorney at Law | Gregory J. Wald
    You may be able to eliminate the security interest in favor of the second mortgage holder through a chapter 13 case, but the law does not allow you to reduce the principle on your first mortgage against your primary residence. You would need to file bankruptcy to prevent the second mortgage from levying your bank accounts or other assets, or hire an attorney to negotiate a settlement.
    Answer Applies to: Minnesota
    Replied: 11/3/2011
    The Orantes Law Firm
    The Orantes Law Firm | Giovanni Orantes
    No, you cannot modify a loan secured only by your principal residence under the Bankruptcy laws as they stand at the moment. There were some efforts made in 2009 to amend the Bankruptcy Code to permit bankrutpcy judges to do so, but they were defeated by Republican Congressmen and other Congressmen who seemed to be sponsored by the banking industry.
    Answer Applies to: California
    Replied: 11/3/2011
    Bankruptcy Law office of Bill Rubendall
    Bankruptcy Law office of Bill Rubendall | William M. Rubendall
    You cannot modify your first mortgage by filing a chapter 13. You can strip the second mortgage if your home is worth less than the balance on the first mortgage.
    Answer Applies to: California
    Replied: 11/3/2011
    Foster Law Group
    Foster Law Group | William Foster
    A bankruptcy court may not lower the principle balance nor change the terms of a first mortgage in a chapter 13 bankruptcy.
    Answer Applies to: Colorado
    Replied: 11/3/2011
    Buff & Chronister, LLC.
    Buff & Chronister, LLC. | Curtis L. Chronister Jr.
    The Bankruptcy Code does not give the Court the legal authority to adjust secured debt for a first mortgage that is secured only by real estate that is the debtor's primary residence. Therefore, if this first mortgage is on your primary residence, you will not be able to adjust that debt. You can, however, adjust or eliminate the second mortgage by executing a lien strip. It sounds as though you should definitely consult an experienced Bankruptcy attorney to discuss your particular situation and options.
    Answer Applies to: Georgia
    Replied: 11/3/2011
    Law Offices of Daniel Moulton
    Law Offices of Daniel Moulton | Daniel Moulton
    A chapter 13 won't help the first mortgage.
    Answer Applies to: Illinois
    Replied: 7/3/2013
    Janet A. Lawson Bankruptcy Attorney
    Janet A. Lawson Bankruptcy Attorney | Janet Lawson
    You can only get rid of the second mortgage in Chapter13, nothing can be done about the first.
    Answer Applies to: California
    Replied: 11/3/2011
    CONSUMER PROTECTION ASSISTANCE COALITION, INC. (DE).
    CONSUMER PROTECTION ASSISTANCE COALITION, INC. (DE). | Gary Lee Lane
    It is possible and we can work on it for you.
    Answer Applies to: California
    Replied: 7/3/2013
Click to View More Answers:
12 3 4 5 Free Legal QuestionsConnect with a local attorney