Expert: Mark J. Markus- California Bankruptcy Attorney - 12/3/2009

Question
QUESTION: I have just met with the trustee today after filing a chapter 7. If my case is discharged, but I still want to keep my home what is the next step? Do I contact the lender myself or will they contact me? I am not current on my mortgage due to lost of income at the time, this was the reason I filed Chapter 7. However, if my case is discharged and I no longer have to pay the credit cards this will allow me to have more money towards the first mortgage, if the lender is willing to do a restructuring of the loan and lower my payment. My home is currently worth only $170,000 but I owe $305,000. What do I need to do first? In addition, to the first mortgage, I have a second mortgage in the amount of $35,000. I was told that I should not worry about the second. So, what happens to the second if I only do a reaffirmation of the first. This is confusing, can you explain this to me in layman's terms? Thank you.

ANSWER: You need to contact your lenders and work out payment arrangements with them to prevent foreclosure.  Usually this is done by a loan modification, but you can also do via reaffirmation agreement (your attorney can assist with that).  It doesn't really matter which way you do it; you just need to understand that either lender can foreclose if you are not current with your payments under applicable state law.

http://www.bklaw.com/

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QUESTION: I do not have an attorney, I completed and filed the chapter 7 paperwork myself with the help of a paralegal who prepared the documents. Do I need to go to the courthouse to submit a reaffirmation before my discharge which may not happen until 2010 or do I wait until after the discharge?

Answer
Reaffirming a mortgage is unnecessary unless there are some specifics in your state's laws that make it necessary.  In general it's a very bad idea.  However, to answer your question, any reaffirmation agreement must be fully executed and filed with the court prior to discharge in order to be valid, and you would need to have a court hearing scheduled to have it approved.

If your home is worth $170,000 and the first mortgage is owed $305,000 you definitely don't want to reaffirm unless you get them to agree to some amazing reduction in payments or principal, in which case they should prepare the agreement and have it filed.   The second mortgage will remain against the property after your bankruptcy case is over.  If and when you sell the property or someone forecloses you will not owe any deficiency amount from the sale.

You really need to get an attorney in your area to advise you on all of this.