Chapter 13, Then 7...Good Move?

[BKINAZ]

We have an $88k secured 2nd Mortgage (HELOC) does it make sense that we file chapter 13 to strip lien that 2nd and then file chapter 7 (when we can legally do it) to not have that 2nd hanging over our heads?

If possible and good idea...how soon after 13 can we file 7. Any down side?

[pcn]

I wondered the same thing. Our lawyer told us that to get the advantage of the lien strip, the 13 has to be completed, so you couldn't do the 7 for 5 years. Whats the advantage of doing the 7 after the 13 is complete?

[StartingOver08]

I believe you order is a Ch 7 first, then Ch 13, also..

called a Ch 20 (supposed to be a joke - there is no actual Ch 20).

According to Moran Law the reason you file the Ch 7 first is to get rid of all the debt you are allowed to get rid of in the 7 and then you file a 13 to pay back the debt you could not get rid of in the 7. The reason you file the 7 first is you get through the process in 90 to 120 days for the dischargable debt. The debt that can not be discharged, taxes and priority items, can be repaid in the Ch 13. This is from Moran Law:

A strategy frequently used is to file Chapter 7 to discharge those debts that are dischargeable, and file a subsequent Chapter 13 to repay those debts that were not discharged in Chapter 7. This sequence is sometimes called a "Chapter 20", a 7 plus 13. In fact there is no Chapter 20 of the Bankruptcy Code. This approach is limited by the provisions of the 2005 amendments which allow a discharge in a subsequent 13 only when specified time has passed.

http://www.moranlaw.net/chapter_13.htm (there is more in this link)

The order is important. You do not do a Ch 13 and then a 7 (unless you lose your job or something) - that order will not help you in a strategy. If you file a Ch 13 and then convert to a 7 due to a financial hardship - that is a horse of a different color.

[HHM]

You can't do the chapter 13 first because you will not receive a discharge in the subsequent chapter 7. (unless you wait 4 years).

What would you be filing chapter 7 over?

The chapter 13 will still discharge all your unsecured debt, there really should be no need to file a subsequent chapter 7. To lien strip in a 13, you must receive a discharge of that 13, which means you need to finish the plan. At the end of the plan, there would/should not be anything left to discharge.

As was already pointed out, you do the chapter 20 (chap 7 followed by a chap 13) to deal with priority, non-dischargeable debt.

I think someone stayed up a little late

[BKINAZ]

You can't do the chapter 13 first because you will not receive a discharge in the subsequent chapter 7. (unless you wait 4 years).

What would you be filing chapter 7 over?

The chapter 13 will still discharge all your unsecured debt, there really would be no need to file a subsequent chapter 7. To lien strip in a 13, you must receive a discharge of that 13, which means you need to finish the plan. At the end of the plan, there would/should not be anything left to discharge.

As was already pointed out, you do the chapter 20 (chap 7 followed by a chap 13) to deal with priority, non-dischargeable debt.

I think someone stayed up a little late

Not sure who the last line was too...but...if we file chapter 7 first, we still owe our 2nd ($88k) in full in our chapter 7, but our unsecured debt (say our $200k loan/$70k credit cards) are completely gone. The (2nd) is a big payment per month...$550 as of now if we have to pay it in chapter 7.

If we file 13 first (I understand that is not the way it is done) all our debt gets rolled into a $200-$350 (guesstimate) per month payment. (not including house) It (2nd) becomes unsecured right? So I thought that made sense that you could roll that in the 7 then? Guess smart things don't always make sense in this type of situation?

Quite frankly we are in the perfect storm (my business wise) where I will average $500 per month for the previous 6 months and next 6 months (giving us the ability to do 7)...but when (IF) I do start making money we are screwed in Chapter 13 because I don't keep any of it.

Always four years? I hmmm I thought I have heard people in 13 were able to convert to a 7...I just thought it was at any time vs that long of wait?

[HHM]

You are not gonna do a chapter 20, your situation is not for what a chapter 20 is for.

If your goal is to get rid of the 2nd mortgage and keep your house, you would ONLY file a chapter 13. Make whatever token payment you would make for 60 months, then BAM, your done. All unsecured debt discharged, 2nd lien removed...nothing left to do.

Note, if you convert a 13 to a 7, YOU LOSE THE LIEN STRIP.

You are over thinking this. Remember, in a chapter 13, any unpaid unsecured debt at the end of the plan is discharged. The only way to successfully strip the lien is to receive a discharge of your chapter 13.

[pcn]

There is another related thread that talks about negotiating a settlement with the owner of the second mortgage. Is that a possibility? If the 2nd is settled, then file the 7 and be done in much less time.

[HHM]

There is another related thread that talks about negotiating a settlement with the owner of the second mortgage. Is that a possibility? If the 2nd is settled, then file the 7 and be done in much less time.

Good luck.

That is an option, but the downside of it is you take the success of the solution out of your hands. But, you can always try (assuming you can hang on financially long enough to see it through...about 2+ months).

[BKINAZ]

If your goal is to get rid of the 2nd mortgage and keep your house, you would ONLY file a chapter 13. Make whatever token payment you would make for 60 months, then BAM, your done. All unsecured debt discharged, 2nd lien removed...nothing left to do.

You are over thinking this..

Thanks for the board to the head...lol...kidding. The "BAM your done" is the issue. Yes I want my cake too...there is just something fundementally wrong with filing 13, making $20k the next year more and having to give all but 10% to the trustee? I don't feel like taking a vacation from making money. I didn't vote for Obama...but I am sure as hell pulling for is save the poor right now.

[BKINAZ]

Yeah pnc...that may be my other thread.

Going to check for it...

This is one website I found..

There is a way to do it. Actually three ways.

Is the second mortgage a piggyback loan? Sometimes the lenders who made the first mortgage also made the second. Maybe they can allocate the short sale proceeds to release both loans.

Or, you may be able to buy out the second. They are in a position where they will get nothing at this point. If you can offer them a nickel on the dollar of debt, or a dime, maybe they will take it. That assumes you have a bit of cash. But it may not take much. After all they are already prepared to be wiped out. If you do a deal like this, make sure you get the arrangement in writing including how they will report to the credit bureaus (you want to avoid foreclosure appearing there) and also that they will not go after you any more -- this is full payment of the second mortgage and forever wipes clean that debt.

And there is a third option for most folks who do not have cash to buy out the second mortgage.

This third option is doing a deal with the second mortgage holder: They will release the second mortgage in order to allow the short sale to go through. In return, you will sign a note for a percentage of that loan.

Such a note is a personal loan, an unsecured loan, and would be dischargable in bankruptcy. But if you can manage the payments this is a good outcome for all concerned compared to the alternatives. Remember that if they get wiped out, the second mortgage holder can still come after you in civil court but by signing a note you make it cheaper for them and either way, something is better than nothing.

These three options are the best ones to consider if you want to do a short sale and avoid foreclosure, but have a second mortgage on the property. I would always recommend you consult a good lawyer to help you and best of luck.

[pcn]

the downside of it is you take the success of the solution out of your hands.

What do you mean? Whose hands does it move to? The 2+ months is how long it typically takes them to want to deal? Thanks for the input.

[HHM]

What do you mean? Whose hands does it move to? The 2+ months is how long it typically takes them to want to deal? Thanks for the input.

Well, by negotiating with the 2nd, you put the decision in their hands. They are either going to say yes or no. With a BK-13, you are in complete control of the situation, the lender has no choice in the matter. That is what I mean by not being in control.

[pcn]

If they say no, or you get tired of negotiating, is there a reason you can't then move to the ch13? If so, there's nothing to lose by trying for a short time, is there? Or does starting to negotiate tip them off somehow, and remove any momentum you might have by just going straight to ch13?

[HHM]

No, but keep in mind, it still may not be the best option for everyone. Look at it this way, why give the 2nd something, when they get nothing in a chapter 13. Whether negotiating is beneficial or not really depends on the big picture. If you really need to "eliminate" the 2nd mortgage to make ends meet, negotiation can't do that. And some people simply are not in a position to hold out to allow negotiation to run its course because they have other things going on. I am simply pointing out some of the considerations a person needs to make when they go down this road.

[pcn]

Thanks for the help. I'm not determined to go that route, still looking at all options. We are one of those who would have to come up with the negotiated $. We'd need to consider how the "missing" debt would impact the means test as well, wouldn't we? Sorry for so many questions. It seems like the answer to every question brings up two more...