Will we lose our house if we change our Chapter 13 Bankruptcy to a Chapter 7 Bankruptcy? 20 Answers as of November 09, 2011

Your question has several parts to it. One thing I'd like to mention first is that the lien securing the junior loan against your house will not be stripped permanently until you complete your Chapter 13 case or, at least, get a discharge, depending on which of those two events the Judge's order indicates. That means that if you plan to keep the house, you should try to confirm a Chapter 13 case. If your case gets converted to Chapter 7 and you're behind on your first mortgage, the bank can proceed to sell your house by simply asking for permission from the Court. I cannot tell where your case was filed from your question, but in places like Riverside, for example, if you cannot confirm a case, the Court will dismiss your case or you can request that it be dismissed so that you may try again. In fact, some judges dismiss the great majority of cases that come up for confirmation and make you re-file until you present a plan with the right (in their view) mix of evidence and payments. The bottom line is that your question is too complex to give you a complete answer without asking you more questions to learn information on which the answer depends.

The second mortgage is unlikely to attempt to foreclose as there is no equity beyond the first mortgage (otherwise the lien strip would not have been approved). However, if you convert the lien strip will be void which means that the lien will remain on the property and will need to be delt with if you ever refinance or sell the proeprty. Additionally, the second mortgage may look to foreclose sometime in the future if property values increase and there is equity.

First, you need to find out if your motion to strip the second was contingent on completion of the chapter 13 or not. If not, then converting to a chapter 7 may lose your lien strip. As for the 1st mortgage, find out if your district has a loss mitigation program so you can try to modify in bankruptcy. The lender does not have to modify you and although you still have to go through the foreclosure process in state court, you do risk losing your home to foreclosure. If you have no choice but to convert to a chapter 7, then you may be still be able to file a new chapter 13, twelve months after your discharge from the chapter 7, but you would have to be able to defend the foreclosure in state court to get you enough time after your discharge (commonly known as a chapter 20). This may or may not help but should give you some points to discuss with your attorney to map out your strategy for your local district.

if you convert you will need to tall with the second. I think you keep the thirteen if you can and find a way to make your payments.

It depends on the nature of the situation. You can scan and email or fax your documents over so I can see what your case looks like at this point. If you have the ability to get current on the mortgage prior to the discharge of a Chapter 7, AND, provided the house was exempt, you may be able to save the house.

If you convert to a chapter 7 you will not receive the benefit of the 2nd mortgage being stripped away. Whether the 2nd wishes to negotiate with you is a business question not a bankruptcy question. It depends on their policies. Chances are they will not. What motivation is there?

Since you do not have any equity in your house (which I infer from the lien stripping) a Chapter 7 trustee would not attempt to sell it. The conversion from Chapter 13 to 7 will invalidate the lien strip, so you would wind up owing the full amount of the 2nd rather than reaching the end of your Chapter 13 and having it discharged. If the claim of the IRS is based on the "foregiveness of debt" doctrine, then there is specific provision in the Internal Revenue Code that that doctrine does not apply if you are in bankruptcy, and you should file an objection to the IRS claim and an adversary proceeding in the bankruptcy court to have the claim denied. Otherwise, if it is an ordinary deficiency, it is a priority claim. The problem with losing your job is that if you don't have regular income then the Chapter 13 plan becomes infeasible, and once the trustee knows this he or she will probably move to dismiss or convert. Also if you do not have regular income the question is how will you continue to make the payments on the first deed of trust.

If you have equity in your home you are allowed a homestead exemption and the trustee is entitled to any excess equity. If you have no equity in your house, or if your equity is exempt, you can keep your house all long as you make the payments.

This question sounds as if you are in a bankruptcy now. These are questions to ask your bankruptcy lawyer who is familiar with your case.

I guess the part about your question that bothered me was "will the mortgage company negotiate?". That is the $64000 question. The answer is that maybe they will and maybe they won't, and, if they won't, you can't make them. I am not going to tell you what to do. It's your house and it's your gamble. I'm not real fond of the odds that things will work out the way you want.