Can I save my mortgage payments before I file?

[NeedOptions]

My mortgage has never been paid late in the past 7 years since we opened it. I've been thinking about being late to try for a mortgage
mod. Let's say I stop paying the mortgage for 3-4 months, can I save that money and pay the late payment and regular payment during Ch. 13? If I did this, wouldn't my unsecured creditors get less? This strategy could accomplish two things, a potential mortgage modification and cash saved up so I could use it during lean times during the 5 year plan. I'm in CA so I am able to exempt a good amount of cash. Any pitfalls I should worry about if I did this?

[LadyInTheRed]

Yes, you can do that. You need to be sure you have enough DMI so that your plan payments can cover all of your mortgage arrears (including late penalties, extra interest and any other fees your mortgage company will charge), attorney fees, trustee fees and anything else that must be paid off during your plan. If not, my guess is that you can pay some of what you saved to the trustee instead of exempting it.

If you have a loss or decrease in income and decide you need to file a Chap 7, you will need to bring your mortgage current before filing in order to keep the house. With interest and penalties, what you save will not be enough to cover the arrears.

If you decide to do this, make sure you are organized enough to file quickly if you get a foreclosure notice. If you haven't already retained an attorney, get that process started. You don't want to be deciding what attorney to hire when you are in a hurry to file.

Edited to add: Yes, if you pay mortgage arrears in a Chap 13, your unsecured creditors will get less than they will if you stay current on your mortgage.

[NeedOptions]

So it sounds like this is the way to go. I was always scared to miss a payment on my mortgage as I didn't want to tarnish my credit in order to try for a modification. I no longer care about my credit so I really have nothing to lose. Would the missed mortgage arrears be counted as secured or unsecured debt? I am assuming secured but I could be wrong. I do have one other problem. We owe $240k combined to unsecured creditors. We are also around $100-$120k upside down on the house. I have read that if you are upside down, they count the portion that you are underwater as an unsecured debt. Thus, my total unsecured would be around $360k which is the limit for Ch. 13. Is this true? My lawyer said to not worry about it but I am a little scared.

[justbroke]

One problem with having saved a lot of money when you file... is if you can't exempt it.

(Edited to add... oh... California... you should be able to exempt a good amount.)

[NoTomatoCan]

I have read that if you are upside down, they count the portion that you are underwater as an unsecured debt.

Your signature line says you are from California... Not sure if I am remembering correctly, but I thought California was one state that did not count your unsecured home value against you in terms of calculating the unsecured debt limit. This always made sense to me based on the crazy high real estate prices in some place in California.

I may be mistaken, but I had similar issue when I was first thinking about filing back in November and thought that is what someone posted - wife and I combined are over unsecured debt limit... . Perhaps some other California filers can weigh in. Maybe it is Cal district specific... or maybe I stayed out it the sun too long this weekend!

[NeedOptions]

Your signature line says you are from California... Not sure if I am remembering correctly, but I thought California was one state that did not count your unsecured home value against you in terms of calculating the unsecured debt limit. This always made sense to me based on the crazy high real estate prices in some place in California.

I may be mistaken, but I had similar issue when I was first thinking about filing back in November and thought that is what someone posted - wife and I combined are over unsecured debt limit... . Perhaps some other California filers can weigh in. Maybe it is Cal district specific... or maybe I stayed out it the sun too long this weekend!

I hope and pray you are right. Yes, I am in CA. It makes sense to me that it wouldn't count because I know tons of people who are over 200-300k upside down on their mortgage and couldn't file CH. 13 if this is the case.

[LadyInTheRed]

Would the missed mortgage arrears be counted as secured or unsecured debt?

Secured.

We are also around $100-$120k upside down on the house. I have read that if you are upside down, they count the portion that you are underwater as an unsecured debt. Thus, my total unsecured would be around $360k which is the limit for Ch. 13. Is this true? My lawyer said to not worry about it but I am a little scared.

If you have a second mortgage and the house is worth less than the balance of the first mortgage on the date you file Chap 13, you can "strip" the second mortgage. If the second mortage is stripped, the balance (including arrears) of the second becomes unsecured debt and the 2nd lien is removed when your Chap 13 is discharged. I do not know whether the stripped second is counted towards the maximum allowed unsecured debt.

[NeedOptions]

Let's say that being underwater doesn't count as part of your unsecured debt calculations. If this is the case, would it be beneficial to me to stop paying on my mortgage, try for a modification, and keeping the cash and exempting it before I file for Ch. 13? I could pay the arrears during the 5 year repayment plan, and have more cash saved up for the lean times during the 5 years. Should I do this?

[NeedOptions]

Secured.



If you have a second mortgage and the house is worth less than the balance of the first mortgage on the date you file Chap 13, you can "strip" the second mortgage. If the second mortage is stripped, the balance (including arrears) of the second becomes unsecured debt and the 2nd lien is removed when your Chap 13 is discharged. I do not know whether the stripped second is counted towards the maximum allowed unsecured debt.

Thanks LIR. I don't have a second, only a 30 year fixed mortgage.

[lrprn]

Should I do this?

One question no one has asked yet....are you absolutely certain that you must file Ch 13? Just because you earn more than the CA median for your family size doesn't mean you automatically have to file Ch 13.

I would hate for you to deliberately go late on your mortgage and then find out that you actually can qualify to file Ch 7. You can't file Ch 7 and keep your home if your mortgage isn't up to date on filing day.

Have you had any free initial consultations with experienced bk lawyers in yoru area yet? They won't do the Means Test and Schedules before you pay one a retainer, but they usually can give you an idea about which chapter you are likely to have to file.

Talk with a few bk lawyers first before embarking on this plan to quit paying your mortgage to get a loan mod before filing.

[NeedOptions]

Yes, I have had 4 consultations and they all said that My wife and I make too much ($145k combined for a family of 4) to file Ch. 7. I figure if by some miracle that I can file for Ch. 7, I will be able to pay back all the late payments as I am going to be saving the cash. I already have about $6k saved up by not paying my minimum payments so that should help.