Settlement terms instead of filing Chapter 13?

[ArizonaBK13]

I have a first and second mortgage. First mortgage is underwater, allowing second mortgage to be lien stripped in BK13. The primary reason for me to file BK13 would be to do the lien strip, although getting rid of the other unsecured debt wouldn't be bad. The second mortgage is almost 250K.

I'm working with the bank that has the second mortgage, and am at the point that I am proposing the settlement terms.

I'm offering paying 18% of the current balance over 5 years to settle the account. This is in comparison to the ~2% that they would probably receive in a BK13 payment plan given my current income / budget calculations we have done to date.

Anyone have any suggestions as to the terms that should be in the offer? My lawyer is going to review it too but I want to make sure I've thought of everything I can.

Thanks

[StartingOver08]

Make sure you negotiate the release of lien (satisfaction of mortgage) from the second too - not just the payment.

[HHM]

Is the bank even on board with the idea? It is one thing to propose some wild settlement offer, it is quite another to get it accepted. Also, if you are going to do this settlement outside of BK (not likely to happen, sorry to say), you will have a giant deficiency issues; and only 2 things can happen with that deficiency, (a) it becomes and unsecured debt against you and they (or someone else tries to collect it), or (b) the lender forgives the debt and then you have a huge tax issue to deal with. Regardless of what you have read or heard, you cannot negotiate around this, IRS regulations require the issuance of a 1099 if the lender forgives the debt, and if the lender does not forgive the debt, then it is a live debt against you.

You're better off in a 13.

[ArizonaBK13]

Yeah the terms (if accepted) would be to forgive the debt, and a 1099 issued. What I just now am picking up is if you are insolvent, you only do not have to pay taxes on the amount you are insolvent up to.

So if I'm in debt 50k, and the bank forgives 200k, I would still have to pay takes on 150k of debt.

I'm seeing the light for a 13.