Countrywide Home Loans in a Chapter 13

[simon2020]

I asked an excellent attorney about revising my second home and he gave me some good tips on how to work with CW Home Loans. If your mortgage is held by CW, then this might help you/and your attorney.

Here's my conversation with her today:

I have a question regarding Countrywide Home Loans. First let me give you some background facts:

1. Home loan is for a vacation home out of state - I am in California.
2. I am renting right now and working to pay for this property. The property has been in my family for years and I want to keep it.
3. Current mortgage is at 7.125% fixed until 5/1/09 when it resets with a 6-Month Libor rate index + 6.75% (ouch - I know!)
4. I received a letter from CW yesterday giving me an estimate on how much my rate will go up - right now 1.77% libor index + 6.75 = 8.37% or about $250 more per month on top of $2065 (current)

Now, I understand currently a Chapter 13 candidate cannot have the judge cram down a home that is considered primary, however, vacation, second homes, boats, etc. is ok by the courts.
I knew I would be filing chapter 13 back in the fall, so I called CW and asked if they could "modify" my loan. At the time (December) the rep. said no because I needed $500 more in income to qualify.

So now that is out of the way, when I file for Chapter 13, should I:

1. First Call the Bankruptcy Department of CW first and warn them of my filing - hopefully they will work with me now.

2. Wait to file and have the judge work with them to change terms like interest rate/monthly payment?

3. Do I have to ask the judge to petition CW Home Loans? I'm not sure how this works.


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HER RESPONSE
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First Call the Bankruptcy Department of CW first and warn them of your filing - hopefully they will work with you.

If you think you can avoid filing Ch 13 then call CW and threaten to file Ch 13. Maybe they'll be more reasonable. After all Ch 13s are quite expensive.

But if you must file Ch 13 then you and your attorney will present a plan to the court which will include a revision of your CW loan. CW will be served with a copy and have the opportunity to object. The court will hear their objections and either approve the plan or ask you to modify it.

****************

It looks like my attorney was right - he will go to bat for me and present a plan and lower my payment amount so my plan can work. CW will then have time to object or the judge will tell my attorney to modify the plan. If CW does not object, then it's a GO!

I'm filing soon, so hope it works out.

[simon2020]

Any Countrywide or mortgage experts out there?

[justbroke]

• Renting apartment at $1,000 a month
• Second home at $1,000 a month
• 2 Cars at $400/month each (allowance is $489)
• no other secure creditors
• Second home worth $200,000 and owe $100,000

In this scenario, you will have to pay a minimum of $1,667 a month to the unsecured creditors. This is due to the $100K in equity.

If you had no equity in the second home, and even if your DMI is negative, you would have to pay a minimum of $1,000 a month to the unsecured creditors, because your payments on your second home is disposable income and should be directed towards your unsecured creditors. Otherwise, the Trustee could (and should) file a bad faith objection to the confirmation of your Plan.

The only way I can see either version of my scenario working is if you owe no money to unsecured creditors, or owe less than $100,000 (or $60,000) to unsecured creditors, and have significant income. In all cases, that $1,000 month being paid on a non-homstead property is income that must be devoted to the unsecured creditors.

Some Trustees will allow you to put balloon payments in your plan, whereby you sell that second property towards the end of the plan. I don't recommend that, but some do allow it.

Please let us know how this works out. I know that I have responded to several of your posts on this topic.

[simon2020]

Also, to make it even more fun, your second home will not count towards your expenses. If that payment is $1,000 a month, you'll have to contribute that $1,000 a month to your unsecured creditors.

Illustrative example:

* Renting apartment at $1,000 a month
* Second home at $1,000 a month
* 2 Cars at $400/month each (allowance is $489)
* no other secure creditors
* Second home worth $200,000 and owe $100,000

In this scenario, you will have to pay a minimum of $1,667 a month to the unsecured creditors. This is due to the $100K in equity.

If you had no equity in the second home, and even if your DMI is negative, you would have to pay a minimum of $1,000 a month to the unsecured creditors, because your payments on your second home is disposable income and should be directed towards your unsecured creditors. Otherwise, the Trustee could (and should) file a bad faith objection to the confirmation of your Plan.

The only way I can see either version of my scenario working is if you owe no money to unsecured creditors, or owe less than $100,000 (or $60,000) to unsecured creditors, and have significant income. In all cases, that $1,000 month being paid on a non-homstead property is income that must be devoted to the unsecured creditors.

Some Trustees will allow you to put balloon payments in your plan, whereby you sell that second property towards the end of the plan. I don't recommend that, but some do allow it.

Please let us know how this works out. I know that I have responded to several of your posts on this topic.

Justbroke - thanks for your response.

I am a little worried now because you said my second home mortgage payment would be accepted as an expense. Here's my actual situation.

1. Live with partner - we both own our condo. I am only on the deed but I do not pay the mortgage. I only contribute a small amount per month. This amount helps for utilities and HOA dues.
2. Partner pays for most of the home expenses - food, tv cable, internet, etc.
3. Have own car - paid up
4. Income $5500 (Gross per month)
5. 401-k $200 per month
6. Flex Healthcare $100 per month
7. 2nd home mortgage (under only my name) $2,500 per month
8. Other expenses - that I pay haircuts, pet insurance, car insurance cell phone, gas for my car, medical rx, dr co-pays around $500 per month.
9. Other Fixed expenses besides 2nd home mortgage
10. Back property taxes $3k added to petition

Citi loan (under litigation) $16,000 incl atty fees (plaintiffs) - NO PAYMENT AT THIS TIME but it was $375/month - I stopped paying them back in June 2008.

Cash Call Loan $5,000 $255/month
Another loan $8,800 $285/month

2nd home I own has a mortgage of $297,000.00
Home is worth maybe around $360-$399k
Equity in home $60k to $100k


UNSECURED CREDITORS (14 credit cards-Amex, Chase, etc.) $14,000.00

What I was told by my attorney that for me to keep my 2nd home I needed to pay 100% because I had equity in my property. Now I am confused with your comments about me not having to use my $2,500 mortgage payment to Countrywide as an expense.

Based on all my #'s he said I will be paying around $900/month over 5 years to unsecured creditors and paying Countrywide outside of the plan so I don't occur more trustee fees.

Excuse me for being a little confused, but if I take your example, I think what you are saying is I WILL NOT be paying $900/month but rather $2,500 a month to my unsecured x 60 months = $150,000 for the life of the plan?!? What??

Why would I have to pay my mortgage payment ($2500 DMI income) to my unsecureds? It doesn't even make sense.

Maybe I missed something or if you could look at my #'s above and see if it is similar to your example.

Thanks -- you rock by the way -- I respect your knowledge about all this BK information. I learn so much from your other posts as well.

[justbroke]

Excuse me for being a little confused, but if I take your example, I think what you are saying is I WILL NOT be paying $900/month but rather $2,500 a month to my unsecured x 60 months = $150,000 for the life of the plan?!? What??

Ahh... this is a little more clear. However, you are saying that you dont' live in the second home and that the second home is not your primary residence? If that second home is not your primary residence, you cannot claim it as an expense in your Chapter 13. The details on the condo that you are occupying now, make it more clear to me, regarding you paying rent.

Why would I have to pay my mortgage payment ($2500 DMI income) to my unsecureds? It doesn't even make sense.

If you are not living in that house and/or that house is not your homestead... you would have to pay that value to the unsecured creditors, or 100%, WHICHEVER IS LESS, of what you owe the unsecured creditors.

Maybe I missed something or if you could look at my #'s above and see if it is similar to your example.

Because of your high income (above median) and low expenses (now all based on the IRS Allowances), you would probably be paying 100% anyhow to the unsecured creditors.

When I used my example, it may have seemed that I implied the entire $2,500/month goes to unsecured creditors for the duration of the plan, but that's not 100% true. What will happen is that $2,500 goes to the unsecured creditors until they are paid back at 100%.

From what I calculate, you have over $45K in unsecured debt (potentially), from your taxes (they are considered priority unsecured debt), cash call loan, other loan, and credit cards. That alone, in your 60 month plan, would be $858/month (with a 10% Trustee fee on $46,800 of unsecured debt). (Maybe that's what he was working with.)

But, your payment ($900) is not that simply calculated. The way Chapter 13s work is that you must submit to the Trustee all your projected disposable monthly income to the supervision of the Trustee. What that means is that if your disposable monthly income (DMI) calculation is $2,500 on your B22C (Means Test), then you will (probably) pay $2,500 a month until your pay off the unsecured creditors (at 100%). I estimate that to be about 21 months... not including your other secured payments in your plan.

Again, the payment is not just simply all your unsecured debt, plus the Trustee fee, plus debt service on your secured debt, divided by your plan duration (60 months). Your plan payment is your projected disposable monthly income committed to the plan until you pay off your unsecured creditors and secured arrearages.

My little calculation of your unsecured debt

• $ 3,000 taxes
• $14,000 cards
• $ 8,800 loan 1
• $ 5,500 loan 2
• $16,000 Citi (contingent, disputed)
• ===========================
• $46,800 (total unsecured debt)

I probably confused you even more. I apologize, but it is a little complex. If your lawyer is able to level out your payments over the entire 60 months, and not have you commit your (projected) disposable monthly income to the Plan, then he's really good!

[simon2020]

Ahh... this is a little more clear. However, you are saying that you dont' live in the second home and that the second home is not your primary residence? If that second home is not your primary residence, you cannot claim it as an expense in your Chapter 13. The details on the condo that you are occupying now, make it more clear to me, regarding you paying rent.

If you are not living in that house and/or that house is not your homestead... you would have to pay that value to the unsecured creditors, or 100%, WHICHEVER IS LESS, of what you owe the unsecured creditors.

Because of your high income (above median) and low expenses (now all based on the IRS Allowances), you would probably be paying 100% anyhow to the unsecured creditors.

When I used my example, it may have seemed that I implied the entire $2,500/month goes to unsecured creditors for the duration of the plan, but that's not 100% true. What will happen is that $2,500 goes to the unsecured creditors until they are paid back at 100%.



(Simon2020)

So, what you're saying is:

1. I will be paying $2,500 to the trustee per month for 21 months until that unsecured creditors are paid?
2. Now, since I am paying $2,500 to these unsecured creditors, now I cannot pay Countrywide. Are you saying that I need ANOTHER $2500 to pay Countrywide to make this plan work????? Ok, now I'm really not getting it - it seems it defeats the whole purpose about filing Chapter 13. I understand if I filed Ch 7, my attorney said I have to sell the house because there is equity and the unsecured creditors will scream bloody murder if I just wrote them off. ***And that is NOT what I want to do. All I have accepted the fact I will be paying on a 100% plan, but now you threw in a ranch that I have not read, heard or had any knowledge about until you mentioned it. (NOT EVEN MY CH 13 NOLO BOOK mentions this.)

I might as well dump the house, screw the unsecureds, quit my job, buy a one way ticket to some far away country and screw everybody. But I am NOT that kind of person. I WANT to make this work. I know I made mistakes, but I have to make this work.

3. And yes, my attorney based my monthly payment almost to the tee with your $858 below. I said $900 because I was rounding it up.


From what I calculate, you have over $45K in unsecured debt (potentially), from your taxes (they are considered priority unsecured debt), cash call loan, other loan, and credit cards. That alone, in your 60 month plan, would be $858/month (with a 10% Trustee fee on $46,800 of unsecured debt). (Maybe that's what he was working with.)

But, your payment ($900) is not that simply calculated. The way Chapter 13s work is that you must submit to the Trustee all your projected disposable monthly income to the supervision of the Trustee. What that means is that if your disposable monthly income (DMI) calculation is $2,500 on your B22C (Means Test), then you will (probably) pay $2,500 a month until your pay off the unsecured creditors (at 100%). I estimate that to be about 21 months... not including your other secured payments in your plan.


(Simon2020)

Well, when we ran the means test, it came out NEGATIVE.

Again, the payment is not just simply all your unsecured debt, plus the Trustee fee, plus debt service on your secured debt, divided by your plan duration (60 months). Your plan payment is your projected disposable monthly income committed to the plan until you pay off your unsecured creditors and secured arrearages.




(Simon2020)

I did not assume the Countrywide loan would be added to the list and divided by 60. Also, I don't have any secured arrearages.



My little calculation of your unsecured debt

• $ 3,000 taxes
• $14,000 cards
• $ 8,800 loan 1
• $ 5,500 loan 2
• $16,000 Citi (contingent, disputed)
• ===========================
• $46,800 (total unsecured debt)

I probably confused you even more. I apologize, but it is a little complex. If your lawyer is able to level out your payments over the entire 60 months, and not have you commit your (projected) disposable monthly income to the Plan, then he's really good!

(Simon2020)

Are you saying there is hope?

[justbroke]

Are you saying there is hope?

You sound like Lloyd from Dumb and Dumber.

Yes, there is hope. Your District may allow you to spread out the payments over 60 months, but I haven't experienced that. If you don't know, I'm not a lawyer nor am I a paralegal. I don't do this for a living. I have, however, studied several hundred cases and am handling my own case with similar circumstances -- as far as the second home.

Your lawyer is going to know more about what you are allowed to do and/or what your Trustee and Court allows you to do. I'm talking just pure reading of the law.

The problem with Chapter 13s is that they sound like you can keep all your property. What they don't tell you is, at what cost. Most people can't keep second and vacation homes in a Chapter 13 precisely for the reasons I listed in my example. In a Chapter 13, you could technically keep a third, fourth car, two boats, and six houses. It is all dependent on your ability to fund such a plan.

In your case, if you are able to spread out your payments over 60 months for your plan's duration, then you will be in great shape.

I'm just thinking that your lawyer thinks that you only need to pay 100% to the unsecured creditors, and not worry about the projected disposable monthly income part of the equation.

[HHM]

Let's back up and talk about what can and cannot be done in a chapter 13 with regard to second homes.

The code says "modify the rights of secured holders", that does not mean you re-write the underlying loan. What it means is you can modify the lenders rights relative to the "secured asset"...i.e. cram down. You can cram down the principal of the mortgage to the current market value if the house is upside down, but the catch is, you MUST pay off the note within the chapter 13. Beyond that, there is really not much else you can do. Any modification of any kind must typically resolve the debt WITHIN the plan. The court cannot force CW to lower the interst rate for the life of the loan.

[justbroke]

Let's back up and talk about what can and cannot be done in a chapter 13 with regard to second homes.

I for one, agree HHM, although it's buried in the Code.

My concern with this particular filing, is that the home is a second home and the poster/debtor believes that this DMI won't be used as the payment amount. Besides, he is oversecured and I know there's a lot of paragraphs within the code that speak of oversecured creditors and their rights.