CH 7 BK - schedule D - Creditors Holding Secured Claim with same dollar amounts?

[MyFico_704]

Question -

In reviewing my BK papers I'm reading Sch D - Creditors Holding Secured Claim.

Listed first is my 3rd mortgage (HELOC), there are 2 columns with dollar amounts.

   - Amount of claim without deducting value of collateral = $38,528.48

   - Unsecured portion, IF any = $38,528.48

Why is there in the "unsecured" column the same dollar amount as the secured amount?  Does this mean the HELOC is really unsecured AND it is cancelled or wiped clean after the BK discharge?

I realized even though HELOC, it is still secured to by a lien.

[CH-7-Mission-Accomplished]

I'm not sure but if your first mortgage is greater than the current value of the house (you are underwater) then perhaps they list the junior liens as unsecured because in essence they are  Just an educated guess here.

Looks like I'm right, it's called "lien stripping."

http://www.alllaw.com/articles/nolo/bankruptcy/removing-stripping-second-mortgage.html

[despritfreya]

I presume you have an attny or used a document preparation service either of which has a computer program designed to produce bk schedules.  The program makes a calculation as to whether or not there is sufficient equity in the collateral to cover the entire claim.  If not, it automatically splits the number between secured and unsecured.  This does not mean that the lien goes away.  It never goes away without payment by the filing of a Chapter 7.  If you are in a Chapter 11, 12 or 13 you will have to get a Court Order stripping the lien.

Des.

[StartingOver10]

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@despritfreya wrote:

I presume you have an attny or used a document preparation service either of which has a computer program designed to produce bk schedules.  The program makes a calculation as to whether or not there is sufficient equity in the collateral to cover the entire claim.  If not, it automatically splits the number between secured and unsecured.  This does not mean that the lien goes away.  It never goes away without payment by the filing of a Chapter 7.  If you are in a Chapter 11, 12 or 13 you will have to get a Court Order stripping the lien.

Des.

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I should give you 5 stars for this answer!  It is a perfect answer for all those people coming forward now with defaulted and discharged 2nds and 3rds, but the lien remains on the property. 

[despritfreya]

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StartingOver10 wrote:  It is a perfect answer for all those people coming forward now with defaulted and discharged 2nds and 3rds, but the lien remains on the property. 

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Yes, and as I have stated on other forums,  with values increasing, the folks that decided to bury their heads in the sand by not either servicing these loans or settling with the lenders will be in for a rud awakening.  I envision a new waive of foreclosures once the values recover to a level that justifies going after the collateral.

Des.

[StartingOver10]

^^^I see the same thing. The lenders are in it for the long haul.

Leaving a defaulted mortgage lien on your property and expecting  it to just go away after a Ch 7 is totally unrealistic.  Taking care of the lien with a settlement after Bk solves the issue for the long term.

Many will get an unpleasant surprise when they go to sell their home with 'equity' because they have ignored the mortgage lien. I see this usually with second's or HEL's and a paid on time first mortgage. It is frustating, most especially since it could have been handled either during the Bk (Ch 13) or immediately after a Ch 7 discharge.

Don't these Bk attorney's explain about the mortgage liens? Or is it the filer doesn't understand that getting a discharge doesn't get rid of the mortgage lien?

[despritfreya]

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StartingOver10 wrote: Don't these Bk attorney's explain about the mortgage liens? Or is it the filer doesn't understand that getting a discharge doesn't get rid of the mortgage lien?

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I cannot speak for others but my clients are fully advised that they must deal with the second.  In a Chapter 7, if the client's wish is to "keep", as opposed to "surrender" the property, the Statement of Intention typically states "retain - stay and pay" or "retain - will seek non bk modification or settlement".  Further, Schedule I always references a payment to the 2nd.  Client can never come back and state "you did not tell me I had to pay my 2nd".

Des.

[ezdriver]

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@StartingOver10 wrote:

^^^I see the same thing. The lenders are in it for the long haul.

Leaving a defaulted mortgage lien on your property and expecting  it to just go away after a Ch 7 is totally unrealistic.  Taking care of the lien with a settlement after Bk solves the issue for the long term.

Many will get an unpleasant surprise when they go to sell their home with 'equity' because they have ignored the mortgage lien. I see this usually with second's or HEL's and a paid on time first mortgage. It is frustating, most especially since it could have been handled either during the Bk (Ch 13) or immediately after a Ch 7 discharge.

Don't these Bk attorney's explain about the mortgage liens? Or is it the filer doesn't understand that getting a discharge doesn't get rid of the mortgage lien?

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Great question ... but I suspect that bankruptcy attorneys are deciding to be narrowly-focused only on the bankruptcy and subsequent discharge. Lien stripping is not really a bankruptcy issue ... but it is a post-discharge cleanup issue.