Need Advice; Disposable Income, Means Test, and Second Mortage Removal

[justbroke]

First, on the Schedule J, use your actuals. You may revisit Schedule J after completing form B22C/B22A depending which chapter you file. Again, there's some finesse as to when to use actuals or IRS allowable limits on those forms. A skilled lawyer knows what to use when.

OK. I am trying to understand the above. If the lien strip doesn't work, then I really don't want to go in chapter 13. I would like to go in chapter 7. How do I do that?

Your lawyer will, may, work the numbers both ways in different scenarios. If you go into Chapter 7 and give up the house (surrender it), you may not actually qualify for a Chapter 7. Understand? It's finesse, and this is why a competent lawyer who understands both lien stripping and 13 vs. 7 issues, is important.

And what happens if my second mortgage file an unsecured claim for the difference? Is this mean that they can still legally come after me, get a judgment, and start garnishing my wages, etc?

No, they cannot. You are protected by Title 11 of the U.S. Bankruptcy Code (whether it's Chapter 7 or Chapter 13). They can't come after you (period). What they do is file a deficiency claim (an "unsecured" claim) for the deficiency against your bankruptcy estate. Say you end up paying 10% to your unsecured creditors, and that you stripped the second lien. That second lienholder would get $0.10 (10 cents) on the dollar!!!

I thought that if the judge allow lien strip, then the second mortgage becomes unsecured debt, and then is repayed (only small part of it) in chapter 13. And then nobody can come later and come after you for the difference? But can they come later and sue you on the note?

Exactly, see my last statement. It's actually a "claim" against your Bankruptcy Estate. More specifically, it's an unsecured claim.

Then what are the benefits at all of doing chapter 13 lien strip?

If you're in a 10% plan... it's obvious! If you had a second mortgage of $47,000 then you would only pay back $4,700 of it in your Chapter 13!!! That's a $42K savings. Pretty simple math, and very very powerful tool. That's why Bankruptcy is such a powerful debt tool.

If you're required to be in a 100% plan, then lien stripping does not make sense.

Do you understand that all now?

[rrockinggramma]

I believe that it would be discharged and to come after you would violate the stay. The kicker might be in getting them to release the lien at the courthouse etc so you don't run into a buzz saw should you try to sell down the road. So maybe talk to a third attorney and ask if they have lien stripped prior. Keep calling and keep making appointments until you find the right one.

[TooMuchCredit]

So if you were going to propose a plan of $400/mo without the strip which comes out to be about 20%. You strip the 2nd which frees up the $800 payment to that loan. The previous unsecured balance and the entire equity loan balance arent added together and a new % figured? You just pay the equity balance at 20% too? With the equity balance + unsecured balance at the $1200 rate would bump my payback to 40% if it works that way.

[TooMuchCredit]

So if you were going to propose a plan of $400/mo without the strip which comes out to be about 20%. You strip the 2nd which frees up the $800 payment to that loan. The previous unsecured balance and the entire equity loan balance arent added together and a new % figured? You just pay the equity balance at 20% too? With the equity balance + unsecured balance at the $1200 rate would bump my payback to 40% if it works that way.

Any input on this? It would be great for me if I am able to strip and keep the % at what was proposed for other unsecureds.

I am stressing now about how I will be able to live under the IRS standards.

[justbroke]

So if you were going to propose a plan of $400/mo without the strip which comes out to be about 20%. You strip the 2nd which frees up the $800 payment to that loan. The previous unsecured balance and the entire equity loan balance arent added together and a new % figured? You just pay the equity balance at 20% too? With the equity balance + unsecured balance at the $1200 rate would bump my payback to 40% if it works that way.

Yes, you basically have it...

And, I just realized earlier this evening, and after having read an article, that it is NO WONDER why CitiGroup is for the cramdowns. They win both ways.

You see, most people filing Bankruptcy have credit card debt. If you file and they allow the cramdown of the mortgage, then more money is freed up. Guess where that money goes in a Chapter 13?

You got it... unsecured creditors, like credit cards!!! (Where Citi and Bank of America are Kings).

On another side, I'm sure that the amount of the cramdown is then submitted as an unsecured claim, so the Bank gets some of that back anyway.

This is actually all starting to make sense in a number of ways, as it's a win-win for all.

Wait a minute though.

It will not help ALL Chapter 13 filers and here's why. You still have to commit all your disposable income (projected disposable income) to your plan. If a mysterious $800 now shows up.. . guess where that goes? Right back into your plan. You may be lucky and you were already in a 50% plan and another $400/month would put you in a 100% plan and free up $400/month more for you... but, the likelihood is more that you will end up committing all of that "savings" and putting it into the Plan.

On the other hand, it may allow some folks to keep their home, which is worth it, in the end.

[TooMuchCredit]

Yes, you basically have it...

And, I just realized earlier this evening, and after having read an article, that it is NO WONDER why CitiGroup is for the cramdowns. They win both ways.

You see, most people filing Bankruptcy have credit card debt. If you file and they allow the cramdown of the mortgage, then more money is freed up. Guess where that money goes in a Chapter 13?

You got it... unsecured creditors, like credit cards!!! (Where Citi and Bank of America are Kings).

On another side, I'm sure that the amount of the cramdown is then submitted as an unsecured claim, so the Bank gets some of that back anyway.

This is actually all starting to make sense in a number of ways, as it's a win-win for all.

Wait a minute though.

It will not help ALL Chapter 13 filers and here's why. You still have to commit all your disposable income (projected disposable income) to your plan. If a mysterious $800 now shows up.. . guess where that goes? Right back into your plan. You may be lucky and you were already in a 50% plan and another $400/month would put you in a 100% plan and free up $400/month more for you... but, the likelihood is more that you will end up committing all of that "savings" and putting it into the Plan.

On the other hand, it may allow some folks to keep their home, which is worth it, in the end.

Yeah, that is what I was thinking. If I don't strip I think I am looking at 28% to unsecured, but if I can strip the 2nd and free up that payment, it would be 44%.

I am just wondering how hard the 2nd holder will fight given that if the house were foreclosed and sold, they would most likely get less than 44% of what I owe them. What I need it to appraise at to strip is about $23K lower than what zillow.com shows it.

[justbroke]

Yeah, that is what I was thinking. If I don't strip I think I am looking at 28% to unsecured, but if I can strip the 2nd and free up that payment, it would be 44%.

I am just wondering how hard the 2nd holder will fight given that if the house were foreclosed and sold, they would most likely get less than 44% of what I owe them. What I need it to appraise at to strip is about $23K lower than what zillow.com shows it.

Zillow is overrated. You need to get a CMA (Comparative Market Analysis) from a Realtor. For a real value, you need to hire and pay an appraiser. I paid $299 for my appraisal, and it was worth every penny as I shed about $130K from a second mortgage, in a plan that pays 0.2%.

[mgdebt]

Hi,

Does anyone know how current an appraisal date needs to be to the bk13 filing date for lien stripping? I don't want to get one too early, but I am in the same situation, where I need about the house to go down about 10K more to be below the 1st mortgage - according to zillow - but I think if I get an appraisal, it will come in below the 1st. HOWEVER - I don't plan on filing for another 3 - 4 months. Any advice??

[justbroke]

Hi,

Does anyone know how current an appraisal date needs to be to the bk13 filing date for lien stripping? I don't want to get one too early, but I am in the same situation, where I need about the house to go down about 10K more to be below the 1st mortgage - according to zillow - but I think if I get an appraisal, it will come in below the 1st. HOWEVER - I don't plan on filing for another 3 - 4 months. Any advice??

Best case, you want it just before filing. I would say a month or so is good. Remember, prices are going down, and the value is as of filing. So, you want it as close to filing as possible.

I did do a lien strip. My appraisal was dates 60 days after filing, and I didn't get any flack.

[isbktheway]

JS, how did you make out? I am in a similar situation with my home and 2nd mortgage and not sure which direction to go in..

[lrprn]

@isbktheway, JohnSmith has not posted to the forums since February 2010. He isn't going to see your question.

This is one reason why there's a forum rule about not pulling up outdated, long-inactive threads like this one and making new posts to it. The posters on the thread may well have moved on, and it's always possible that the information contained in this thread from 2009 that was accurate then may now be out of date.

In the future, if you have a specific question to ask, please start a new thread of your own. We want to help! Thanks so much!