Advice on Chapter 13 Please...

[webshot]

I'm new to the forum for obvious reasons. I want to make sure I'm making the right decisions for me and my family and could use some advice.

The break down...

• $85,000 Second Lien used to buy a now failed retail business
• $210,000 first mortgage on a house worth approx $190,000 (on a good day)
• $6300 in credit card debt.
• $30000 loan to keep the bus. afloat in case the economy recovered (never happened)
• One car payment
• Wife is now unemployed and cannot collect unemployment.
• Everything is up to date on payments.
• We live in California

We have been talking to a lawyer to strip the second lien and to get rid of the other unsecured debt.

I don't want to have any illusions of what I can expect after filling for Chap. 13. Any input or advice you can provide would help greatly.

Thank you for your time.

[SMinGA]

Do you know if you'll be above or below the median income? Its based on the average income for the 6 months prior to filing. So that would be Jan-Jun if you filed in July; Feb-July if you filed in August and so on. If you're over the median, you can only file a 60 month plan. If you're under you can be eligible for 36 months.

A ch. 13 assesses your income and expenses - and the difference becomes a payment to the court. This amount is divided among creditors. First is priority debts (secured debt, taxes being the most common) and if anything remains it is divided among unsecured.

I understand 'lien stripping' is common in ch. 13s, for situations like yours where your home is now worth less than what you owe on the 1st mortgage.

[webshot]

Thank you for your reply...

I believe I am over and only have the 60 month option.

After doing MUCH reading on this forum, I'm now considering Chapter 13 as the nuclear option. I have read everywhere that people are being forced to pay %100 of what they owe in only a five year time span with no flexibility.

I'm going to first pay off my credit cards (I have enough extra cash to do this and only this). Then try to negotiate with everyone else. I figured the worst case scenario would be the second lien would try to foreclose (if they will not negotiate), at which time I could use the nuclear option of Chapter 13.

I have read that some people have had to stop making payments for a few months with some lenders before they would negotiate. I have no problem with this if that is what will bring the creditor to the negotiation table.

So where are the holes in this plan? There must be something I'm not considering?

Thank you again

[LadyInTheRed]

Thank you for your reply...

After doing MUCH reading on this forum, I'm now considering Chapter 13 as the nuclear option. I have read everywhere that people are being forced to pay %100 of what they owe in only a five year time span with no flexibility.

Your plan payment is based on your disposible monthly income (DMI). Your unsecured creditors get 100% only if your DMI over 60 months is high enough to pay attorney and trustee fees and secured debt and still leave enough to pay 100% of the unsecured debt. They don't start of by saying "we want you to pay 100%, so your payment is $x.xx," and then set an unrealistic budget. If you have enough DMI to put you into a 100% plan, the question to ask is whether you can pay all of your unsecured debt (including the 2nd mortgage if you can't afford to pay it) in 5 years without the protection of a Chap 13 which stops interest on your unsecured debt.

Don't overestimate your ability to settle with creditors, especially if you don't have a chunck of cash to pay. Creditors usually settle for a lower amount in exchange for cash now, if they'll settle at all. If you are able to settle with some creditors and not others and still have to file Chap 13, you've thrown your money away. If you are ready to "pull the trigger" on a 13 if you have to, it doesn't hurt to stop paying to find out what kind of deal they'll make, but make sure you can settle with enough creditors to avoid BK before you settle with any of them. Settlement is a great option if it'll work, but from what I've read, very few are able to do it.

[debtinohio]

You might want to look into a Chapter 7 if you primarily have business debt, you can avoid the means test to qualify.

[webshot]

Great information! Thank you both for replying.