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For example, let's say that you bought your home two years ago
for $250,000. Like many people, you may have paid little or no down payment. Let's
assume your first mortgage was for $200,000 and the second was for $40,000; maybe
you paid $10,000 as a down payment, maybe not.
Now, two years later, your home is worth at most $200,000 (this
is very common for condo or townhome owners, as these properties typically depreciate
the quickest in a depressed market). Quite often, the foreclosure sale auction
process earns lenders much less than the current market value. In this case, the
second mortgage lender stands to lose all or some of its money after foreclosing
on the property. Since the second mortgage lender stands to
lose money, it may be more willing to negotiate an agreement with you directly
to let you catch up with the delinquent payments after the bankruptcy. While this
is a possible solution, it is also very difficult to achieve because the lenders
(and the company servicing the loan) are too overwhelmed with the number of requests
to modify loans. It may be impossible to actually talk to anyone! Finally,
you state that you would hope to reaffirm your first mortgage and discharge the
second mortgage in the bankruptcy. This is not possible without completing the
proper motion, called a lien avoidance motion. This is a motion filed while you
are inside the protection of the bankruptcy that will remove the lien from your
property's title. When a lien on property is "wholly undersecured," then the lien
can be avoided, thus removing it from title because the property has insufficient
equity to secure the second mortgage. You can avoid the second mortgage with a
timely filed motion in a Chapter 13 bankruptcy. This option is not available in
Chapter 7. This will be challenging because the second mortgage
lender probably will file the motion for relief from stay immediately upon receiving
notification of your bankruptcy. You will need to file the lien avoidance motion
immediately to stop the court from granting the lender's motion. And expect the
second mortgage company to put up a fight regarding your motion to remove the
lien. They have very little to lose in trying to fight your attempt to eliminate
their mortgage. You need to have a competent bankruptcy attorney
handling your case, or make sure you understand how to complete all the requisite
forms and motions. | 
