Can Plan include refi at end of 5 years?

[DecentHuman]

I had one bankruptcy attorney tell me I could create a ch 13 plan including payments affordable to me on my rental properties over the next five years, then refinancing them at the end. He said if I couldn't refi, I could allow them to foreclose and at least I've gotten another five years out of my business.

Another bankruptcy attorney said no, a plan must include payments that will have the entire debt paid off in five years; a refi at the end will NOT fly as a plan.

What is the truth? Does this vary by which district you're in? Different judges? Thanks.

[SMinGA]

Whether or not the secured debt (mortgages) have to be paid in full in the plan depends on the district. Where I am, the full mortgage balance does not even if the plan is paying arrears. But (my district, again) it is different with car loans. If past due, the car loan must be paid in the plan and paid off during the plan.

I'd be wary of anyone who promises you can refi in 5 years. No way to predict that now, as it will be influenced by your income, property values, etc.

[Flamingo]

Yes if you have a good attorney you can do that - we did, but we had a lot of equity in our home to begin with at the start of our plan and we bought out 4 years into a 5 year plan because during that time we also paid down our mortgage; we really came out good doing that and refinancing but we did not refinance just to buy out of the plan - we had major house repairs that could not wait another year. In your situation, however, iti s now 2010 (we filed in 2002) and with the economy the way it is now, home prices are going to lay flat for at least two years and then climb very slowly if at all. Basing a Chapter 13 Plan on what the value of the home(s) is in 5 years could be like sitting at the slot machine. This is not a time to gamble and it all depends on what you owe on the property and what you think your status will be in five years. None of us have a crystal ball.

Get a few other consultations with some good attorneys (stay away from the BK mills - if they advertise 2:00 a.m. on TV or say they can help everyone, avoid them). Call your State Bar Association for some referrals in your area.

[justbroke]

It is likely that a plan that depends on a refinance at the end, will probably get some opposition.

Why even keep the rental properties? I say this as a person who surrendered my last investment property (rental) after 5 months into my Chapter 13.

[DecentHuman]

More concerned about plan than outcome

The way I look at it, if I can't get a bank to refi my rentals in five years, so be it. I'm no worse off than I am now with them all going into foreclosure. If I can set up a plan that works and at least have another five years self-employed, it sure beats losing everything now. Plus, five years is a long time to get things together. Since I can cram down the mortgages to today's value in a 13, I'll owe less than the current principal balance and hopefully WILL be able to refi.

[justbroke]

The way I look at it, if I can't get a bank to refi my rentals in five years, so be it. I'm no worse off than I am now with them all going into foreclosure. If I can set up a plan that works and at least have another five years self-employed, it sure beats losing everything now. Plus, five years is a long time to get things together. Since I can cram down the mortgages to today's value in a 13, I'll owe less than the current principal balance and hopefully WILL be able to refi.

I don't think you can refi the subject properties, in order to satisfy the crammed down value.

I think it wouldn't work because you'd basically be refinancing the thing that you're cramming down. There's no redemption in a Chapter 13, and what you propose reads just like a redemption (get a new loan to pay the current market value).

Now, what the more astute attorney wrote, about it not flying, is probably correct. It would be either the Trustee or the creditor objecting to your confirmation. The smart creditor would oppose such a plan every day of the week, and twice on Sundays.

[Flamingo]

I had one bankruptcy attorney tell me I could create a ch 13 plan including payments affordable to me on my rental properties over the next five years, then refinancing them at the end. He said if I couldn't refi, I could allow them to foreclose and at least I've gotten another five years out of my business.

Another bankruptcy attorney said no, a plan must include payments that will have the entire debt paid off in five years; a refi at the end will NOT fly as a plan.

What is the truth? Does this vary by which district you're in? Different judges? Thanks.

Realize that with the refi at the end of the plan, you will have to refinance those properties to pay off the remaining balance of your plan; hence the reduced payments throughout the plan. Your payments are reduced say, up to month 55, then you start the wheels in motion for refinancing and you will have a balance to pay at the end of your plan, not just the regular plan payment. A regular Chapter 13 has the same payment every month until the last payment. With a refinancing at the end of a Chapter 13, your payments are reduced to make it easier to get through the Plan but you have to ensure you would have the funds at the end of the Plan to pay the balance owing. We had the same set up but only had one property (house). It all depends if you have enough equity in the properties to refinance at the end of your plan and pay off the remaining balance.

These plans were quite popular when housing values were rising and one could expect to have a lot of equity in a home in 5 years from filing...

[justbroke]

These plans were quite popular when housing values were rising and one could expect to have a lot of equity in a home in 5 years from filing...

Flamingo, correct me if I'm wrong, but the popularity was to pay off the plan base... not to actually "cram down" the value of the property which you're refinancing, right? In other words, this was popular to reduce the monthly payments by refinancing a home in year 4 such that the cashout refinance provided enough to pay the plan base.

[momofthree]

Hypothetically, if one entered into this type of plan, and then (for whatever reason), the opportunity to refinance was not available at the end of the plan, would the unsecured debts still be discharged, or would the entire plan be dismissed due to non-completion?

[justbroke]

Hypothetically, if one entered into this type of plan, and then (for whatever reason), the opportunity to refinance was not available at the end of the plan, would the unsecured debts still be discharged, or would the entire plan be dismissed due to non-completion?

It would be dismissed because you failed to cover the plan base.

[Flamingo]

Flamingo, correct me if I'm wrong, but the popularity was to pay off the plan base... not to actually "cram down" the value of the property which you're refinancing, right? In other words, this was popular to reduce the monthly payments by refinancing a home in year 4 such that the cashout refinance provided enough to pay the plan base.

Correct. The only way this sort of option would work is if one had a good bit of equity going into the Plan on a property and that that property would increase in value enough, while payments were also being made on the mortgage(s) during the Plan, to have enough equity at the end of the Plan to pay off the Plan in one chunk. This option reduced Plan payments during the Plan which made it easy for the Plan to be successful. A good lawyer is required. We had one of the best in our state at the time we filed. We came out of our Plan in excellent shape with that option especially due to needing house repairs and played it smart by just refinancing what we needed. We still have a lot of equity after this economy in this house due to being prudent and not crazy with the refinancing at that time. It's all about what one has going into the Plan and working with a good attorney. Otherwise, in this economy and if that option is actually available and will fly in one's district, you can see how easy one could crash and burn at the end of the Plan if there is not enough equity to refinance and pay off the Plan...

[DecentHuman]

Otherwise, in this economy and if that option is actually available and will fly in one's district, you can see how easy one could crash and burn at the end of the Plan if there is not enough equity to refinance and pay off the Plan...

Ok, the first attorney who told me I could have reduced payments for five years and then refi also said if I couldn't refi, no big deal, just give the houses back to the bank or let them foreclose. He did not say my unsecured debts would not be discharged. I think this guy must be a bad attorney. Although this thread is making it clear that there's no real clarity on this issue!

[justbroke]

Ok, the first attorney who told me I could have reduced payments for five years and then refi also said if I couldn't refi, no big deal, just give the houses back to the bank or let them foreclose. He did not say my unsecured debts would not be discharged. I think this guy must be a bad attorney. Although this thread is making it clear that there's no real clarity on this issue!

The first attorney was speculating. In order to get a discharge, you must make "all payments under the plan". If the plan payments include the amount that depended on the refi, how could you make "all payments under the plan"? Well, you could modify your plan at the last minute so that the "houses" are not in the plan. I would personally speculate that those creditors -- that had the houses -- would be really mad and ask that you not be discharged of those debts (the unsecured portion).

I mean, you drag them along for 5 years only to surrender them in the end, without any "adequate protection" during those 5 years? I think the key in the first attorney's speculation, and mine, is that you would need no objections to the discharge... from creditors and/or the Trustee.

Seems like too many what ifs to me.

[HHM]

This plan is dead from the get go. There has been a general shift, no plans will be confirmed that depend on a refinancing event.

Attorney 1 is purely speculating that no one will object, however, I don't see how this plan could even work. A cram down must pay the debt in full in five years and not be dependent on a future, uncertain event.