Legal Question in Bankruptcy in California

When you file bankruptcy, you must include all debts you owe in the bankruptcy petition. First, this is important because failure to do so can be considered bad-faith, and result in a dismissal or worse, prosecution for perjury. Second, and perhaps more important is the fact that if you do not show your first mortgage, your property will appear to have substantially more equity than it does, possibly exposing it to liquidation by the Chapter 7 trustee.

Now, if your question is can you discharge the second mortgage in bankruptcy, but keep the house and keep the first mortgage only, the answer is no in a chapter 7. In a chapter 13, assuming that this is your primary residence, you MAY be able to strip the second mortgage from the property, and retain the property without repaying the second mortgage; however, this is not a real simple issue. You need to consult with a bankruptcy attorney before you take any steps to file for bankruptcy protection. Filing the wrong information, or wrong chapter may seriously jeopardize your ability to obtain the maximum relief possible.

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