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Columns: Bankruptcy Adviser
Justin Harelik   Expert: Justin Harelik
Bankruptcy Adviser
Falling behind on a second mortgage
Bankruptcy Adviser

Saving a home in bankruptcy

Dear Bankruptcy Adviser,
What can I do if I am in the process of filing Chapter 7 bankruptcy? I have a second mortgage that I am behind on, which means they could foreclose. How can I keep my home? By reaffirming the debt? Could I reaffirm my first mortgage but let my second mortgage, along with my unsecured debt, be discharged in the bankruptcy? I'm really confused. I probably need to consult a real estate attorney.
-- Daniela

Dear Daniela,
When you file Chapter 7 bankruptcy while delinquent on a mortgage, typically, you will lose the house. The court grants you protection from creditor actions once you file bankruptcy. All legal processes are stopped, or "stayed" in bankruptcy terms. Foreclosures, civil lawsuits (not criminal cases), unlawful detainer actions and car repossessions cannot continue once a person files bankruptcy.

This does not mean that the foreclosure process started prior to the bankruptcy cannot continue after the case has been filed. The lender holding the note on the delinquent mortgage usually files a motion with the court called a motion for relief from stay. This means that the lender wants to start or continue with the foreclosure process.

But before it can legally do so, the court must grant the lender this right. Once granted, the protections you are given when you filed bankruptcy are lifted and the lender can continue with foreclosure.

Because you are delinquent on the mortgage payments, you would need extraordinary reasons to show why the lender should not be allowed to continue foreclosing on your home.

As I stated, this is the typical process after a person files Chapter 7 bankruptcy when behind on a mortgage.

However, there is nothing typical about today's mortgage environment. You may have some room to negotiate with the second mortgage company, depending on how much property values have decreased in your area.

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