Will my creditors stop calling if I file bankruptcy?

Yes. One of the great benefits of bankruptcy is that once your case is filed,  all your creditors must cease all harassment and collection activities – including phone calls, letters, lawsuits, garnishments, evictions, and foreclosures. This bar is called the automatic stay and is designed to give you breathing room while you work through the bankruptcy process. There are very serious consequences for creditors who violate the automatic stay. If a creditor contacts you, repossesses your car, or forecloses on your property without the court’s permission, they are considered to be in contempt of court and you may be able to recover actual damages that result (including attorneys’ fees paid to enforce the stay). Any action taken in violation of the stay is void.  So if your lender sells your house at a foreclosure sale while the stay is in place, the sale is void- even if the creditor had no notice of the stay.

Once a debt is discharged in the bankruptcy, the creditor will not be able to come after you for repayment even after the automatic stay is lifted upon conclusion of the bankruptcy because you will no longer owe the debt.

Violations of the automatic stay are common. An experienced bankruptcy lawyer can help you enforce your rights under the automatic stay.

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
425.889.933

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Can I get rid of my 2nd mortgage in bankruptcy?

Only if your property is underwater (the mortgage exceeds the value of the house). Generally, both first and second mortgages are secured debt. Secured debt cannot be eliminated in bankruptcy. But if your first mortgage is more than the value of your home, your second mortgage (and any other junior mortgages) is considered unsecured. This is because if your primary mortgage holder forecloses on your home, there will be no funds left from the sale of the home to pay the second mortgage holder, meaning the second mortgage is not secured by the property. This process of removing your second mortgage from your house is called lien stripping.

Example. Let’s say your house is worth $200,000 and you have a $250,000 first mortgage and a $50,000 second mortgage.  Since your first mortgage is more than your house is worth, you can strip your second mortgage.  (If you also had a third mortgage, then you could get rid of that too).  But if your house was worth $280,000, then you have $30,000 of equity above the first mortgage so you cannot strip your second mortgage.

Similarly, if the home is worth less than the outstanding principle on the first mortgage, the court may cram down (reduce) the mortgage principle to reflect its current market value. The excess debt is then unsecured and  can be eliminated.

For more information or help with getting rid of a junior mortgage, reducing a first mortgage, or advice on dealing with underwater property, contact a Seattle Bankruptcy Attorney.

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
425.889.933