Very unique situation, ch. 7, 13, 11?

I don't think saving the house and getting discharged on the LOC and HELOC is possible at the same time. You seriously need to check with a bankruptcy lawyer about your alternatives.

11 is not an option for you, since that chapter has to do with business reorganization. Filing a Chap 11 isn't going to help you with your personal debts (which the business' debt was personally guaranteed) or home.

If you file a Chap 7, you will have to reaffirm those debts in order to keep the home. Reaffirming reinstates the terms of the contract, and essentially excludes it from the bankruptcy. In that case, your payments will still go up when the APR goes up, which defeats your whole purpose.

In a Chapter 13, debts are only "secured" to the extent of the value of the property. Depending which lien has first position, one of them will have to be repaid in full (and you'll most likely still have to pay the rate increases). The other can be treated as fully (or mostly) unsecured, and your attorney can have that lien stripped. Being unsecured, you may be able to pay them as little as 5-10% of their claim over the course of 3-5 years, depending on your plan.

SO, to answer your question, Chap 13 is really going to be your only option if you want to keep the house. Although you might try some alternatives before actually considering that route -- maybe it's possible to refinance into a fixed rate? Or maybe you can do a loan modification?

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I have read that Chapter 11 BK is an option for individuals. It is complex and expensive, though.

just found out neither loan is showing first priority...who would become unsecured then? Would they be willing to settle for lower amt.?

As to the Chapter 11 comment, a Chap 11 is basically the same as a Chap 13 in that it is meant for a business to continue to operate while repaying its debts. Since the OP mentioned he was receiving unemployment and his wife just went back to work, I am making assumptions that his LLC is defunct -- that is why I said it is not an option, because I don't think he's trying to continue that business' operations.

As to the liens -- they are prioritized by the date recorded. So if one loan was opened in 2007 and the other in 2008, for example, then the 2007 is a first-position lienholder and has priority over the second-position. So the best answer to that question is that the "newest" loan will be the one that becomes unsecured if you go BK.

It is possible that you can get them to settle using that rationale -- tell them you might be forced to file a bankruptcy, and that they would be considered unsecured due to the value of the home and first position entitlements. However, I'll add that many people use bankruptcy as a "threat" without really following through, and so creditors don't usually take the threat seriously until you actually file. If they see that your account is current, and your other creditors are current, they may not take you so seriously if you try to pursuade them to settle by threatening bankruptcy if they don't.

To be honest, though, I don't have much experience dealing with mortgage lenders or loan mods so I can't offer you any real advice in those area. Hopefully another member will be around who can expand a little more on loan mods.

If the first is for 160, and the home is worth 170, can you reaffirm the first and will the entire second (180) be discharged?

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Not entirely ..... the second would be secured to the extent of $10k; then you can treat the remaining $170k as unsecured.

That is also assuming the home actually appraises @ $170k. Obviously if you try to strip the second lien and treat them unsecured, they won't go down without a fight. They will have their attorneys in court, and probably try to argue that you low-balled the value of the house. Then the court will probably have to appoint some independent third party to give its own valuation of the house.

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At this point with the courts it really depends on the judge. Here where I am, the courts here are not happy with Banks and seem to relish screwing them in favor of homeowners. We had 1st and 2nd mortgage with Wachovia-been filing paperwork since Feb 08 for a modification, did everything they told us to do, everything, updated all paperwork monthly. They choose to jerk us around since then. We gave up and got a lawyer and filed bankruptcy. Well, the court sent someone to value the house and all. Now, 4 years ago when we got the 2nd mortgage to remodel our home and most around us were valued at at least $250,000. Now we are valued at only $155,000, and thats with doubling the size of the house, 2 master bedrooms, 3 other bedrooms and 3 full baths, 1/2 bath, full laundry room and full walk in pantry, $155,000-get real. Well, that in effect stripped the 2nd mortgage and Wachovia showed at the creditors meeting and tried to dispute the judge stripping the 2nd. Well, the judge told Wachovia-tough luck for ya'll, you should have worked with them over the last year. We had everything they were sent, all copies and cmmr receipts and phone logs of every call made to them monthly, the homeowners worked with you for help and you kept pushing them off now your bank pays the price, I about flipped and then my lawyer tells me that more and more judges are fed up with the Banks that got bail out money not helping the homeowners and they are now all ending in their courtrooms. That they are stripping more and more 2nd mortgages because the banks got their money but not helping homeowners and its their way to teach the banks a lesson, legally. God I loved my lawyer. So make sure you fight to get that 2nd stripped, it can be done