Modifying plan and surrendering home

[Billssuck]

Hello!

I have posted recently about converting our 13 to a 7 due to my husband's decreased income. After talking with my lawyer today, he suggest the best financial picture for us is modifying the ch13 to surrender our home and redoing our expenses. He thinks that we won't have pay much more to the trustee than we are paying now after rent, increasing our withholding for tax purposes, changing daycare and increased expenses with that, and other monthly living expenses.

My question is this: has anyone been successful with renting a home while in the midst of a chapter 13? If so, do you have any suggestions? Plus, we will be moving out of a 4,500 sq foot home and we will need to sell items to be able to fit into a much smaller home. Any suggestions there?

If anyone has done this type of modification before, could you please give me some pointers to make it smoother? It's alot to think about but I am at peace (actually excited) to be moving out of my prison that I now call home. I have had it with trying to scrape every penny into our home that actually owns me and not the other way around. Just so you're wondering, our mortgages with utilities is about 50 percent of our income so that is why we are surrendering the house. We just can't afford it with my husband loosing about $700/mo with his new job after being laid off last November.

[lrprn]

My question is this: has anyone been successful with renting a home while in the midst of a chapter 13?

My question for you is that if you surrender your house and you do qualify to convert to Ch 7, what's the advantage of staying in your 13? Are there other assets involved besides your house that you would lose if you file a 7?

Plus, we will be moving out of a 4,500 sq foot home and we will need to sell items to be able to fit into a much smaller home. Any suggestions there?

I would ask your lawyer if selling household items will be ok. That's going to reduce the amount you can claim for household item values in an amended 13.

Just so you're wondering, our mortgages with utilities is about 50 percent of our income so that is why we are surrendering the house. We just can't afford it with my husband loosing about $700/mo with his new job after being laid off last November.

It's great that you are able to see the value in not being held a financial hostage by a thing any more. Far better to rent and focus on making life much less stressed for your family - that's what really matters. Good for you!

[Billssuck]

There are several reasons for modifying the ch13 vs a ch7 conversion but I'm still not completely sold on the modification of the ch13 as recommended by our lawyer. Basically, we'd have to pay our attorney fees remaining in the ch13, then pay for the conversion to ch7 attorney and filing fees before a conversion to a ch 7. Also, we're trying to get the IRS to do a post petition for taxes owed this year to add to our ch13 plan. If you add all of these amounts up, it's very close to the same amount we're paying total in our ch13 payments and we don't have to come up with the fees out of pocket for the conversion. Plus the attorney thinks our new expenses with renting, increase tax withholding, etc will not change our monthly ch13 plan payment amount by much if any ($125/mo). But, a part of me still believes our attorney really pushes ch13 vs ch7s. We have an appointment with him May 5th to go over everything with pay stubs, expenses, etc. in hand. We do have four cars to which probably one of them would be surrendered as a non-exempt asset in a ch7.

Like you suggested, I will ask my lawyer about selling household items before I do it. Thanks for the positive response to my decision to let our house go. Really, it is a pit that even after the chapter 13 is done, will still be a problem for our financial future. I'm really at peace with letting it go...it's just a thing anyway.

[BuckeyeGuy13]

I'm by far no expert, but if a conversion to a 7 is possible, I would go that route for a couple of reasons. The primary reason is your debts will be wiped and your financial life will not be under the control of the trustee.

Secondarily, it's tied to the first, is that credit access will be somewhat easier after a 7 discharge than during a 13. As backwards as that may sound, I'm seeing more and more examples of that being the case. From credit cards to auto loans, discharged 7's seem to get better deals than active 13's (this is based on my own research here and elsewhere, secondary and personal research).

For example, an active 13 auto loan is fairly difficult to obtain between trustee approval and finding a lender to write the loan. If granted, terms can be as high as 20%. Simply read the "Credit after BK" section of the forum to see examples of folks recently out of 7 and the terms they're getting....

Finally, you're surrendering your house which will have to go through a foreclosure process. If you want to buy another home, you're looking at 3 years post foreclosure date, i.e. the date on which the title exhanges out of your name. So, the 13 rules for FHA that state 1 year of ontime payments in a 13, don't really apply because you'll have the secondary incident with the FC. Granted, it's included in the BK, but it will still impact your ability to get another loan (if you want one). With a 7, it's 2 years post discharge, so technically, with the 3 year FC window, you'd be out of that 7 window before you could even go for another mortgage.

Just my 2 cents... A bit of a ramble, but I would seriously consider a conversion if you can get it.

[Billssuck]

I really appreciate your input. I've been trying to look at this from all angles and decide what we want to do.

My brother is thinking of selling his home (which would be perfect for us...smaller, less money on utilities, good schools, etc.) and I am proposing he let us rent it until our ch13 is completed and then we try to buy it from him afterwards. So if I'm in a 13 with a foreclosure, it would be 3 years before I could buy his house vs. 2 years with a 7? Hmm...something to think about.

Also, I guess my attorney thinks we don't want to pay money out of pocket right now to file the ch7 conversion. That isn't necessarily the case because if I don't pay my mortgages for about 3 months before I get kicked out, I'd have a good sum to pay him with...and the first month will take care of that.

I was thinking today that we don't have any property to protect in the ch13 if we give up our house and why go with it when we don't need it?. The only issue is the payment of attorney fees (about $1,700) upfront and our taxes owed for 2009 (about $1,100). I will call the IRS next week about how I can pay them and if I don't need to include them in the ch13 (with a post petition), then I'm thinking of reconsidering the ch7. I really, REALLY, feel our attorney pushes 13s over 7s...and I don't want that to be the driving matter in our case.

Thanks again for the advice!

[BuckeyeGuy13]

The way I understand the FHA guidelines, and I've been through them over and over, as I, too, surrendered a home and would someday want to own a home again, is this:

Assuming NO foreclosure/surrender of home: 2 yrs post discharge of chapter 7; or after 1 year of succesful ontime payments in a chapter 13.

Assuming foreclosure/surrender: later of either 3 yrs. final transfer of foreclosed property or one of the above BK scenarios.

So, in your example, as in mine, the chapter 13 is irrelevant in terms of a "timeline" because we are on the 3 yr clock for the deed transfer. Also, should you convert to a 7, you're still going to be looking at the 3 yr clock because that deed transfer will probably take place in a year or so.

I'm in a similar situation in that I surrendered my home in 3/2009. Right now, it looks like the final sale may not take place until 1/2011 - nearly 2 years since the surrender. So, should I convert to a 7 and get discharged in the next 5 months (for example), I would still need to wait another 18 months to qualify for an FHA mortgage after my 2 year window is up because they look at the FC date, too.

In my opinion though, it's worth it though. I would much rather convert, get it over with, rent a place for a few years until the markets stabilize (if ever), find a home that my wife and I can retire in, and be done with it. In my situation, it made no sense to keep a house. Also, in my situation, it doesn't make sense for me to try to stay in a 13, even with a small payment....

Hope it helps.