Expert: Mark J. Markus- California Bankruptcy Attorney - 3/24/2009

Question
QUESTION: I have a first mortgage (458K) plus a home equity line of credit (99K) at the same bank.  In Chapter 13, I understand that the primary mortgage is considered a secured debt and will be paid outside of the plan.  Is the Equity loan treated the same or can it be put into the plan along with the credit card debts even though it too is a secured debt (although second in line to the first mortgage).

ANSWER: They are both secured debts and must be treated as such unless the value of the property is less than the amount owed to the first mtg, in which case you might be able to treat the second as an unsecured claim after filing an appropriate motion to avoid the lien.

---------- FOLLOW-UP ----------

QUESTION: The current value of the property in question is about 459K (from Zillow.com)therefore the first just about covers the current value. In order for the second to be treated as an unsecured claim do I have to have a formal house appraisal done while crafting the plan?  I feel that with my total mortgage being 100K "underwater" and my not being in imminent foreclosure (always on time and current in my payments), and 63K in credit card debt, bankruptcy seems like the right way to go. I don't think a short sale is available to me nor is a reduction in principle. Your thoughts??

Answer
The burden of proof as to valuation is on you, and zillow is not an accurate valuation source.  I always recommend my clients get an appraisal, and the appraiser needs to be prepared to testify in the event it becomes necessary (like if the bank opposes the valuation motion and comes in with a higher appraisal).