Should I Stay or Should I Go Now?

[ameangreenbe]

(All hail The Clash!) Now on to serious business.

I need someone to check my thinking and call BS if I'm being irrational.

I make $136K a year. Three kids under 6. Wife stays at home.
My house is worth $179K and I owe $280K.
I have about $100K in unsecured debt and $9K in secured debt (auto)

I don't foresee my income changing in the next 3 years.

I want to (a) give the house back to resolve the negative equity and get out from under the mortgage and (b) restructure my remaining debt and pay it off over a 5 year plan. We intend on renting a house at a lesser monthly payment. The market here is about $1600 a month for a similar home vs. the $2200 I pay each month including taxes and insurance.

Even if we're able to lien strip the second mortgage on the house I'd still owe $240K on a house worth $179K.

Candidly, I lived an unsustainable lifestyle which depended on bonuses each year to make ends meet. Those are gone now and I'm in over my head.

Finally to my questions. Is my thinking rational? Also, will I owe the bank the difference between the note and what they sell the house for if I include the lien holders in CH13? Lastly, can I tell my HOA to go &%$# themsleves and stop bugging me about my lawn that's brown due to the drought?

Yes, I have an attorney but am considering changing as she doesn't seem able to answer some of these basic questions. Her fee seems WAY out of line for this area as well.

Thanks.

[Flamingo]

Go see at least two other attorneys. Call your State Bar Association for some referrals in your area. No BK mills. Your mortgage is $2200 per month. What are you paying on the car and the credit card/loan bills per month? You do make a lot of money and will need to go over everything with a good Bk attorney especially since you want to give up the house. What do you see as the housing market in your area in a few years...if you stay in your house, you are paying down mortgages while your home will gradually increase. No home will stay low in the hole forever as the market will eventually improve and come back slowly. Depending on your situation, you may want to weigh out a few things as to your home and discuss everything thoroughly with your attorney before you make any moves you may regret later.

[catleg]

I suspect your thinking is rational however you need to carefully plan things out to reduce your disposable income payable to unsecured creditors.
For example if you walk away from the house, the money which you're saving doesn't go to you, it goes to your unsecured creditors. No win there.

[car67]

Here is the redneck breakdown!

Keep the house ITS A POSITIVE even upside down in a CHAPT 13

if your mortgage eats up your free money then thats better for you cause the other creditors get less in the chapt 13 cause by gawd your entitled to your home rights as an american!

if u ditch your house..... you lose a huge tax deduction which you sorely need with your income and also if you go to rent then your paying less in rent and commen sense thinks one can save a little and have some freedom by cutting back! WRONG the trustee sees rent as a way to get more out of you for the creditors since your payment went from 2200 too $1100 leaving $1100 on the table that can go towards debt in the 13 each month....

so u still paying the same but now your the goomba in a rented house with lord knows what issues and you loose your tax dedution on all that fine interest we are paying....

now rent is not deductable..... if you can afford the house for next 5 years stick it out and the market should recover some~!

thats my view

[Billssuck]

I agree. You give up your house and your increased disposal monthly income goes to unsecured credit cards for 5 years. I would rather pay a mortgage for that amount of time that just throwing it to the credit cards. But like others have said, we don't know your whole story (and I'm a newbie at this) and you should seek the advice of 2-3 more attorneys.

[ameangreenbe]

This is why I love by BKForum peeps! Good advice, I now see the other side of the equation. Thank you all!

[Ifonly]

If $2,200 is all you pay for the mortgage, taxes, etc. then I would consider staying based on everything above.

My husband makes about $100K and with my unemployment we're at about the same gross income level as you. We walked away from our house because the first mortgage was $1,550, the second was $1,300 and the taxes and HOA fees averaged almost $900 monthly (we did not escrow). We couldn't maintain those payments even in a CH13. Plus the house needed a new heating system (estimated at approximately $6,000) and would have needed a new roof within 2 - 4 years. And you gotta love the possibility of the HOA doing a special assessment. (they were talking about it).

Renting a home at $1,700 is a drastic reduction in housing payment for us. For you, it's a difference of approximately $500.00 that would perhaps go to the trustee instead.

And the tax implications that a pp mentioned are right on. I had to increase my husband's federal tax withholding almost $800.00/monthly to compensate for the loss of itemizations.

[car67]

Ifonly if you had to do it over would ya have kept the house?

[catleg]

Have you tried to fill out a form 22C using the means test to see what it's going to show as your disposable income?

You might need to consider buying another car on credit to soak up some of the disposable income in your budget so it goes to something benefitting you instead of the unsecured creditors.

You also might want to consider if you can take out 401k loans and use them for anything you might need to buy that's exempt, for example, home improvements if you decide to keep the house, or to repay student loans or anything else non-dischargeable. The 401k loan payments reduce the income available to creditors.

If your lawyer isn't helping you with this stuff you probably need to find another one. I think there are a lot of ripoffs in the BK space by lawyers who want a big fee just to file the papers and not be bothered being an advocate for their client.

[Ifonly]

Ifonly if you had to do it over would ya have kept the house?

Well, it's all new to us (we still haven't QUITE gotten all of our stuff even LOL) and our 341 is this Monday, but I haven't felt a great degree of sadness regarding the house. I feel mostly relief.

And talk about trying to find a silver lining - I'm starting to consider that NOT owning a house might be helpful when my kids apply for financial aid for college.

[HHM]

You are probably one of the more rational people going into chapter 13.

I disagree with Ironfly on keeping the house. You have too much negative equity to dig out of. It would take you 10 years to get positive on that house again. By any measurement, you are better off walking.

You can't look at a chapter 13 and worry about "how much goes to unsecured creditors; the GOAL is to be out of debt and get back in control of your financial life.

[Ifonly]

I disagree with Ironfly on keeping the house. You have too much negative equity to dig out of. It would take you 10 years to get positive on that house again. By any measurement, you are better off walking.

Do you mean me? I don't necessarily think he should keep the house and didn't mean to imply that he should. I was simply pointing out that pp are correct about the tax implications. If he has to pay more monthly in rent and increased federal taxes than he's currently paying for his existing housing, then he's spending more cash every month which does not translate into bettering yourself financially. In the end, people have to do what works for them understanding all of the pros and cons - make a list and take all of the emotion out of it - it's four walls and a roof. Family is what makes a house a home.

I walked away from my house and I fully appreciate and support all of the reasons why you SHOULD walk away. I'm relieved we left the house. I say it all of the time, I will never be house rich and cash poor again.