Chapter 13- insights would be appreciated

[benniebear]

Thank goodness for this forum- it has been extremely informational.

I am considering filing a Chapter 13 in CA and am very confused. I thought it would help to state my stats:

-Unmarried, 0 dependents, Yearly Gross Income $102,000
-1st Mortgage $305K, 2nd Mortgage $132K (just taken out three months ago in hopes I could get my financial situation straightened out- didn't work).
-Realistic market value of home $400K
-Credit Card debt: $53,000

I will be foreclosing on the house during the bankruptcy as making $3000 a month in payments has become too stressful with all of my other debt.

Q1: Will I be responsible for the deficiency judgement for the 2nd mortgage- I am assuming 2nd lender will file a judgement. I read on this link http://www.all-foreclosure.com/procedures.htm
that deficiency judgements are "not practical", but I don't know what that means.

Q2: I bring home about $4500 month. Without the $3000 mortgage payment I am afraid that my disposable income will appear very high. Does that mean I will have to pay 100% on the 2nd loan?
Q3: Without having my mortgage interest to write off each year, I will likely end up owing taxes at the end of each year. Is that factored into the Ch 13 expense plan?

Q4: I believe I will have to pay 100% on the credit card debt over 5 years of the Ch 13 plan. If I pay 100% of my credit cards under the repayment plan, will I still be allowed to contribute to my employer 401K plan?

Thank you in advance for your insights. This is all so confusing to me and I am afraid that my Chapter 13 payment could end up leaving me in the same situation I am in now (over extended) - but worse as I would then have a bankruptcy and foreclosure on my credit.

Kind Regards,

Shel

[CATCHMEIFYOUCAN]

401k plan

will I still be allowed to contribute to my employer 401K plan?

I think in most states the 401k is exempt. I had 2 401k plans because of 2 full time jobs. My total deduction was a little over $600 due to owing on some loans in addition to just socking away 8% into the savings plan alone. My Trustee didn't question the amount.

Have you already filed? This seems to be a safe bet, if you want to show less disposable income.

Catchmeifyoucan

[benniebear]

401K Plan

Hi CatchMeifyouCan

Thanks for your replies to my questions. I really appreciate it.

I have my 2nd appointment with my attorney tomorrow to finish the paperwork, after which, he will file.

I increased my 401K to 10%. Hopefully this won't be a problem as I will be paying back 100% of my credit card debt.

Another worry you may be able to comment on - I am surrendering my house in the Chapter 13. I refinanced with a 2nd lender on HELOC in May and only made one payment (Countrywide). My attorney tells me that when doing a foreclosure as part of a Chapter 13, lenders will rarely (20% chance) go after a deficiency judgement as they would be better off writing off the loss than getting only a portion of the balance due to them.

Did you have any experiences in this area during your filing?

Thanks again,

Shelly

[lrprn]

Another worry you may be able to comment on - I am surrendering my house in the Chapter 13. I refinanced with a 2nd lender on HELOC in May and only made one payment (Countrywide). My attorney tells me that when doing a foreclosure as part of a Chapter 13, lenders will rarely (20% chance) go after a deficiency judgement as they would be better off writing off the loss than getting only a portion of the balance due to them.

Your lawyer is correct. It's rare (but not unheard of) for second mortgage companies to go after a deficiency judgment (take you to court to get the judge to rule that you owe the remaining amount on the second mortgage) after you file Ch 13 and allow the house to go to foreclosure as a part of the plan.

Since you just took $132,000 from Countrywide three months ago, that could make you more vulnerable to a deficiency judgment than if you had borrowed the money a year ago. However, no one can predict what a creditor will do with 100% accuracy in this kind of situation. If your lawyer is familiar with this lender from previous cases, then that increases your chances of slipping by. Time will tell - here's hoping Countrywide decides you aren't worth coming after.

[treehugger1]

bennie, Welcome.

I'll share my situation with you.

~60K credit card and unsecured debt
~$23K auto loans (both vehicles are upside-down, no equity)
~$78K student loans (Lender and Guarantor will no longer work with a deferment
~$12K loans against, 403's, etc (TDI)
Age 51+
Four acounts in collections.
One judgment (almost paid off)
Gross earnings ~$100K with 10% of gross going to tax-deferred investment optional retirement plans.
Total value of all retirement/pension plans (~250K)

TDI's and pension plan have total protection in BK. The new law will allow me to deduct my TDI loans from income prior to disposable income.

I looked into BK 13 over a year ago. I've spoken with several attorneys. My income was declining so everyone thought it best to wait until I knew where my income would stabalize. It will be stable by November. I have not filed. Here is why.

I, like you, would be in a 100% plan last year. (I'm not sure based on your information you will be in a 100% plan). On top of that, the trustee's take was 10% (Oregon). I would not be in a 100% plan now. Recently, a few attorneys told me that the current trustee is "forcing" all student loans into deferment (regardless of what the holders/guarantors want). Given this, I would exit BK 13 in five years owing interest and "other additional fees" on the student loans that might very well surpass my relief of the unsecured/cc debt, gained in a BK 13. No gain.

My/your credit will be harmed by BK. So, don't use BK as a means to improve credit ratings in the short term, although you might see quick improvement at the end of five-seven years.

I decided to stop paying a few big national creditors early last winter. I chose big ones figuring it would take more effort to sue me and maybe they would work with me. Several have given me 5-year payment plans at interest rates under 2%. I had to stop paying them for 90 days to get their attention.

So far, I am keeping my head above water in terms of agreements and paying nasty creditors some money at the "last moment." This is now changing. I will be defaulting on more unsecured debt in the near future. There is nothing I can do about this. I expect lawsuits and judgments and wage garnishments. Unless I see outlandish attorney/collection fees, I'll let the judgments default.
I can live with 25% garnishment and, in fact, garnishment will pay down my debt/interest/fees at approximately $17k per year. In the meantime, I make my student loans payments, car payments, and still have money to contribute to TDI's and recreation.

In my opinion, all I would currently gain from BK 13, is that creditors and collectors would have to honor the automatic stay.

My point is that you might have considerable time to think your decision over. If your house is in foreclosure, how long until you can be forced out in your state? If you think BK is a reasonable option, why not take a month or two and see what unsecured creditors have as options? I'm finding they do have options provided you have a solid income.

If you do go through a forclosure, be prepared for a large credit hit, and be concerned about renting in an area where you need "reasonable" credit in order to rent.

If you default on unsecured/cc debt, be prepared for phone calls, letters, etc. If you learn how to deal with these, you can buy yourself a few more months. In the meantime you can make some payments on the equity loan and attempt to show some good faith.

What will your disposable income look like if you file without the mortgage? Go to the US trustees site and print a copy of schedule 22. Look up the means test and IRS living/transportation standards. Do the calculations and you will get a ball park figure of disposable income.

In the end you may have to file BK 13, but you do have time to work through everything. This would not be the case if you were trying to save your home.
I believe eventually I will need to file. But, I'm waiting for some history or legal challenges to be resolved for student loans.

The great thing about this forum is that you will get a variety of information that when compiled can help you sort things out.

In my situation, an attorney last month, alluded (not considered advice) that if things got really bad for me in terms of lawsuits, collector/creditor issues, I could at least begin the "motions" of preparing to file, give creditors/collectors the attorney's number, and maybe even move forward with filing. This would gain another 30 - 60 days. He stated that until I file, BK is just one of my options. I've read in forums where some folks have had attorney's stall their BK's for months while keeping creditors/collectors off your back.

I applaud you for finding this forum and providing yoru own due diligence.

[HenriettaHen]

TH1 - thoughtful, informative post.

Thanks for your effort and insight.