I have a 1st and 2nd mortgage through the same company. I am going through pre-forclosure on the first. I intend to file Chapter 7. I live in SC.
Question Details: I am still in good standing with the 2nd mortgage. I have a buyer to purchase the house at forclosure. Should I wait to file bankruptcy on the second until after the house sells? The house has a total of around $198000 owed and is worth about half. That is both the mortgages together. The bank says if they sell the first mortgage that I am still responsible for the 2nd. If I go ahead and file Chapter 7, are they going to ask for more money on the house at the forclosure? (For both loans) Or will they only be worried about collecting the first at the sale if I stay in good standing w/ the 2nd?
Bankruptcy Law Answers
It sounds like there's no real point in waiting to file your bankruptcy. If you've got total negative equity of $100,000 or so, there isn't any chance that the sale would bring enough to let you work through the left over debt without bankruptcy. You would still have to pay the second mortgage, which would turn into an unsecured loan after you lose the house; if the first mortgage balance wasn't completely covered, the bank could (and probably would) get a deficiency judgment against you for the difference, plus costs.
In your scenario, it doesn't even matter (to you) what the property sells for, because in Chapter 7, you give up the house, and both mortgage loans are gone at the discharge (end of the bankruptcy), no matter how much was owed and how much of it was covered by the sale.
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