Two questions about surrendering home in Ch 13

[NeedHelpNJ]

Hello,

I am considering bankruptcy because I have two mortgages and my interest rate is going to adjust in November. At this time, I will not be able to pay the mortgages based on my salary. My home is also under water by 30% and it keeps going down. I did try a short sale and deed-in-lieu of foreclosure, but the bank denied both. I am in the state of New Jersey.

My home is about 70 years old, and I plan on surrendering it in BK because I will not be able to afford the much needed repairs. It needs a new roof, sewer line, plumbing, and more.

I have two questions: (1) if I surrender the house in BK, then does the second mortgage become unsecured debt since my home is worth less than what the first mortgage is worth? (2) Then do I have to pay back a percentage of the unsecured debt to help the mortgage company (Countrywide) recoup the losses. For example, if I have $500 DMI, then would I pay $500 per month for 60 months?

Thank you for any input that you have. I want to be prepared when I go to see an attorney.

[justbroke]

(1) if I surrender the house in BK, then does the second mortgage become unsecured debt since my home is worth less than what the first mortgage is worth?

It depends on whether they file a claim. The amount of that claim cannot be determined until the first lienholder actually forecloses on the property and any deficiencies determined. Both mortgages will probably file a secured claim anyhow (and pretty quickly). Of course, your plan won't account for them (as they are being surrendered). The smart lender will file their claim with a secured and unsecured amount. This just gives them a manner in which to modify the claim later... without it being a "new" claim.

(2) Then do I have to pay back a percentage of the unsecured debt to help the mortgage company (Countrywide) recoup the losses. For example, if I have $500 DMI, then would I pay $500 per month for 60 months?

What your "disposable monthly income" (DMI) is calculated to be, will be used to pay the unsecured debt. It is likely that much of the unsecured payments will go to the unsecured mortgage debt (for which a claim was filed)... as a pro-rated percentage.

For example, if you say you have $500 DMI for 60 months, that's $30,000. Let's say that you have two lenders (A and B), and Lender A is $75,000 in unsecured debt, and Lender B files an unsecured claim for $125,000. Let's also say that you have $100,000 in other unsecured debt. This makes your total unsecured debt at $300,000. This makes your "percentage" to unsecured creditors 10%. Lender A and Lender B would get 10% of their (allowed) unsecured claim value. That means, Lender A gets $7,500 (10% of $75K), and Lender B gets $12,500 (10% of $125K), and the other secured creditors get $10K (10% of $100K). The manner in which this distribution is made is known as a pro-rata distribution.

In an alternate scenario, with all claims being the same, and your DMI is negative of $0.00... the unsecured creditors would get nothing, zilch, nada.

Does that make sense?

[NeedHelpNJ]

Thank you justbroke! Yes, that made sense. There are a lot of factors in play. I actually may loose my job in October (I work for a pharma company and we were bought by another pharma), and in that case, my attorney told me I may be eligible for a CH 7. However, I am trying to educate myself as much as possible before all this happens.

Thank you for your help!