Chapter 13 and deficiencies on mortage?

[cereber0s]

Hello all. I had my 2nd meeting with a lawyer a few days ago, and after reading a bit here, I have some questions (it was the third lawyer I talked to, the other 2 were worthless imo).

We are in foreclosure now (haven't paid since 12/08), and the house is just plain unaffordable for me. Load mod didn't work out, short sale, all that...we're just simply going to lose it...I can't throw good money after the bad. I'm going to have a ~$100,000+ deficiency when the house is sold at auction (or sold whenever). When I told my lawyer this is most what I'm worried about he advised a chapter 13 would help. I do also have some unsecured debt plus student loans.

But what worries me is the lawyer put together a 60 mo (I'm guessing 100%) plan with what appears to me to be a low monthly payment. So first my main question is...is chapter 13 normally used as a strategy for combating possible deficiency judgments (this is FL btw)?

I can't follow...I believe I read a deficiency is converted to unsecured debt once the home sells. But if your plan doesn't have the deficiency included, then the bank can't collect, and at the end of the plan it's discharged?? Can the bank reject the plan and demand their deficiency be included..thus skyrocketing the payments? They have 90 days to make their claim once you file correct? But let's say I file before the home sells...what then? With all the stacks of foreclosure paperwork I doubt the home will sell in 90 days. It's so confusing.

[TexasEx]

Don't be confused. That is why we are here. I'm in a very similar situation as you. We have a rental house in Nevada (which used to be our main home). We filed back in December of 09. That house is $200k upside down (and you thought yours was bad!). Our attorney did not include any possible deficiency in our plan. We still own the house by the way and it has not been foreclosed (it has been almost a year since we stopped paying). Our attorney said that if the banks decide to file a deficiency (Bank of America would be owed $70K and Wells Fargo $130K) it would just be handled as a regular unsecured debt. She said that it was highly unlikely that they would file considering our plan is only paying ~10% to all unsecured creditors and if they do, all unsecureds will get less than 1% (!). Once your case is confirmed, it is what it is and your payment can't go up (unless your income was to drastically increase). Main reason we filed was to avoid the possible deficiency (like you) but also to get rid of credit card debt. Just like you we also went through our savings trying to save the home, try to refinance, try to get modification, etc, etc. I'm sure you have finally come to the same conclusion we did. We will emerge from bankruptcy way before you can even hope to break even on the house (even if you could afford it). Filing for BK was the best decision we could have made given the circumstances. The only regret was we waited too long. Good luck to you and stick around the forum it is a great place to get different opinions and (mostly) unbiased advice.

[TexasEx]

Sorry, I forgot to answer the other part of your question. The bank can't demand anything, but they can object to your plan and reduce the percentage amount that all unsecured creditors get. The only way your payment can skyrocket is if you are not contributing all your monthly disposable income into your plan.

Assuming that you are, then the payment is what it is and the bank can have their lovely house back. The trick is making sure that your expenses make your DMI as low as it is possible while still leaving you room in your budget. One problem you might face is that unless you own another house your housing allowance will be considerably lower depending on where you live (at least it was for us) thus making more DMI available to the plan.

[cereber0s]

Thanks for the reply, glad to know that the payment won't go up once it is confirmed. I've read that a 10% or so salary increase is allowable and unless it's considerably more then that won't affect the payment either.

[TexasEx]

It really depends on your trustee. Ours does not require yearly tax returns. My wife is in grad school full time but plans to go back to work when she is finished. I asked my lawyer about this and technically while our payment *should* go up she advised me that we do not need to inform the trustee as long as all my payments continue to be made. Who am I to argue against that advice?