Filing 13, Several Questions

[AnnieW177]

Hi all.

My husband and I are preparing to file 13 in September. My husband has met with the lawyer, and we're trying to get a second meeting for sometime this week to finish clearing up some issues. In the meantime, I was hoping you guys would have some insights.

We are currently way underwater on our mortgage-we bought our condo in 2005 for 207K, and it is now worth around $170K. We have two mortgages (we got caught in one of those ARMs) and just averaging the numbers of the condos currently being sold in our area, we do not qualify to have our second mortgage stripped. We have no desire to keep the property, as we can rent a much larger place for less money (and it would still be within what our state allows for a family of three under chapter 13.) Our lawyer said that we could walk away from our property and allow it to be foreclosed on and it would not increase our payment to the trustee. Is this a good idea? I mean, it can't really hurt our credit any more than a bankruptcy will, and a short sale will most likely not be approved by our bank. Unless we wanted to keep our condo (which we definitely DO NOT), it makes no sense for us to try to save it. I just want to make sure we aren't going to be shooting ourselves in the foot if we do this.

The other thing that our lawyer said was concerning was that we own both of our cars, but they are both closing in on being ten years old. He advised us that he could not tell us to go out and accrue more debt, but that if we had a car die while we were in the bankruptcy, we would have a hard time finding financing to get a new car. If we are going to stop paying our mortgage anyway, we could make the payments for a couple of months before filing. My concern is that it would look like we were actively trying to rack up more debt. We don't want to do that, but we're worried that if something does happen that we'd be screwed if something did happen. The last thing I want to do is accrue more debt, but having a small child without a car would be incredibly difficult. The downside to this: the car allowance is something like $450/mo and we get this allowance whether or not we have a car payment! That would make a nice little savings.

The lawyer did have some good news for us: in our state (Maryland) the trustees tend to be the type that take the payments and don't investigate much into anything else, so we could technically be saving money while on our payment plan. Granted it wouldn't be a lot, but it would be nice to have a cushion in case we did have a problem!

One last question, and this one may seem kind of odd but I feel compelled to ask: we are currently a family of three, and do not qualify for Ch 7. If I have a baby, does that count as a change in circumstances? According to the means test, if we were a family of four we would qualify for 7. How long would we have to wait before converting it to a 7? (I ask only because I am a woman of childbearing age, and I would like to have another child before I am too old.)

I hope this wasn't too confusing!

[boochase]

[QUOTE=AnnieW177;418114]Hi all.

The other thing that our lawyer said was concerning was that we own both of our cars, but they are both closing in on being ten years old. He advised us that he could not tell us to go out and accrue more debt, but that if we had a car die while we were in the bankruptcy, we would have a hard time finding financing to get a new car. If we are going to stop paying our mortgage anyway, we could make the payments for a couple of months before filing. My concern is that it would look like we were actively trying to rack up more debt. We don't want to do that, but we're worried that if something does happen that we'd be screwed if something did happen. The last thing I want to do is accrue more debt, but having a small child without a car would be incredibly difficult. The downside to this: the car allowance is something like $450/mo and we get this allowance whether or not we have a car payment! That would make a nice little savings.

I can comment to this, for I received good advice from the paralegal and this forum. The paralegal suggested I get a new car now, for my credit score will take a hit from stopping the CC payments. We lease, so I turned the car in early and leased a less expensive one. Next she suggested I get an iPhone now rather than later--the cell providers may check your credit report before allowing this transaction; so I did it. I am glad I did. Then someone on this forum suggested that I keep the other car for now; it is leased also. That way my DMI will be smaller. In addition, we are considering going to one car but shouldn't decide that until after confirmation. My point: what you think youa re saving will go to the Payment Plan. Took me a while to get this.

[Pandora]

Hi all.

My husband and I are preparing to file 13 in September. My husband has met with the lawyer, and we're trying to get a second meeting for sometime this week to finish clearing up some issues. In the meantime, I was hoping you guys would have some insights.

We are currently way underwater on our mortgage-we bought our condo in 2005 for 207K, and it is now worth around $170K. We have two mortgages (we got caught in one of those ARMs) and just averaging the numbers of the condos currently being sold in our area, we do not qualify to have our second mortgage stripped. We have no desire to keep the property, as we can rent a much larger place for less money (and it would still be within what our state allows for a family of three under chapter 13.) Our lawyer said that we could walk away from our property and allow it to be foreclosed on and it would not increase our payment to the trustee. Is this a good idea? I mean, it can't really hurt our credit any more than a bankruptcy will, and a short sale will most likely not be approved by our bank. Unless we wanted to keep our condo (which we definitely DO NOT), it makes no sense for us to try to save it. I just want to make sure we aren't going to be shooting ourselves in the foot if we do this.

If you're going to walk away from it - then why file Ch. 13, as that is to payback creditors? Do you meet the means test for Ch. 7 by chance? If so, file 7 and give the house back to the bank, dont reaffirm and let it go that way. If however CH. 13 is the only option, then whatever you were paying to your mortgage gets worked into your Schedules, and eventually, your plan. So make sure when you do your schedules you account for EVERYTHING you have to pay during the year ;)

The other thing that our lawyer said was concerning was that we own both of our cars, but they are both closing in on being ten years old. He advised us that he could not tell us to go out and accrue more debt, but that if we had a car die while we were in the bankruptcy, we would have a hard time finding financing to get a new car. If we are going to stop paying our mortgage anyway, we could make the payments for a couple of months before filing. My concern is that it would look like we were actively trying to rack up more debt. We don't want to do that, but we're worried that if something does happen that we'd be screwed if something did happen. The last thing I want to do is accrue more debt, but having a small child without a car would be incredibly difficult. The downside to this: the car allowance is something like $450/mo and we get this allowance whether or not we have a car payment! That would make a nice little savings.

Your car allowance has to be worked into your budget by what you make, its not a "given" - can you afford it - thats the bottom line. Many things play into it really, you have to budget out every bill you have monthly, allocating amounts for everything. If you have assets and exceed your exemptions, the trustee can sell them or you have to pay it back into a CH. 13 (if you dont qualify for a 7). Lots of variables...

The lawyer did have some good news for us: in our state (Maryland) the trustees tend to be the type that take the payments and don't investigate much into anything else, so we could technically be saving money while on our payment plan. Granted it wouldn't be a lot, but it would be nice to have a cushion in case we did have a problem!

In reality, there is no saving of money in a CH. 13 plan - any extra money you have goes to pay back your creditors - Chapter 7 is a little different however.

One last question, and this one may seem kind of odd but I feel compelled to ask: we are currently a family of three, and do not qualify for Ch 7. If I have a baby, does that count as a change in circumstances? According to the means test, if we were a family of four we would qualify for 7. How long would we have to wait before converting it to a 7? (I ask only because I am a woman of childbearing age, and I would like to have another child before I am too old.)

Future children do not count, they have to be here already, alive and breathing. I dont know about the converting thing, but I'm sure someone else will come and chime in that does

I hope this wasn't too confusing!

Good luck to you!

[SMinGA]

The means test is only part of the equation in determining ch. 7 vs. ch. 13. Expenses & DMI (disposable monthly income, or what is left after all bills & expenses) plays an important role.

If you currently have DMI sufficient to make a plan payment, then you would have a very hard time filing a successful ch. 7. If you had a 4th member to the family, your expenses would change. If you're in a 13 and that happens (or other events that change your financial picture) you can change your plan. The broad options are: amend, dismiss or convert to a ch. 7. What you're able to do would really depend on your situation.

My understanding: you're not going to be able to claim a $450 car payment to build savings if you really don't have a $450 car payment. Again, means test is only part of the situation. Schedule I & J look at your expenses. What your atty perhaps is getting at is that as things stand now, maintenance on a 10 year old car can be a good chunk of $, and the car will probably not last thru a 3-5 year plan. Taking on a reasonable car payment now for a newer car may be in your best interest. Its not the same as going on a vacation cruise or buying a closet full of designer clothes... Reliable transportation is pretty important. Buying a vehicle now would probably mean your unsecured creditors get a little less.

[AnnieW177]

The lawyer did the means test, and my husband makes 10K over what the lawyer says qualifies us for 7. I'm going to double check that for myself.

We are considering surrendering the property-we do not want it as we can rent a much bigger place for less money in our area. I'd rather do that than let it go into foreclosure, but I don't know if that is really an option. A short sale is probably out of the question, given who owns our mortgages.

We do not have a new car, but our lawyer told us we would get the "allowance" for a car payment because Maryland does not have a law on the books stating that you have to have a car payment to get the allowance. From what I understood, we would get the full "allowances" (which where we live is 1500 for rent, 1152 for food and miscellaneous, 491 for utilities, and 489 for transportation, plus we get an exemption for our daughter's preschool and other activities.) He said that it was possible to save during 13 because our state trustees typically were the kind who would not be checking our bank accounts.

Anyway, I plan on asking him when we meet with him again. I'm just so confused by all of this!

[LadyInTheRed]

We are considering surrendering the property-we do not want it as we can rent a much bigger place for less money in our area. I'd rather do that than let it go into foreclosure, but I don't know if that is really an option. A short sale is probably out of the question, given who owns our mortgages.

If you are filing BK, there is no reason to do a short sale. If you decide to surrender the property, you can stop making payments and live there rent-free until the bank forecloses if you want. That can take anywhere from several months to a couple of years. If you don't want to stay that long, you at least can take your time finding a rental and saving money for the deposit.

[AnnieW177]

If you are filing BK, there is no reason to do a short sale. If you decide to surrender the property, you can stop making payments and live there rent-free until the bank forecloses if you want. That can take anywhere from several months to a couple of years. If you don't want to stay that long, you at least can take your time finding a rental and saving money for the deposit.

That was my suggestion to my husband. It will take the bank at least three months to foreclose, so we could live here rent-free for a couple of months before we had to move. I thought that you can surrender the property, but the bank doesn't have to take it back...is that correct?

[LadyInTheRed]

That was my suggestion to my husband. It will take the bank at least three months to foreclose, so we could live here rent-free for a couple of months before we had to move. I thought that you can surrender the property, but the bank doesn't have to take it back...is that correct?

Yes. The bank could leave the house in your name forever if they want. The problem is, as the owner of record, you would be responsible for any liablity related to the property even if you move otu. This is why it's a good idea to try to get the mortgage company to accept a deed in lieu of foreclosure if you move out before they foreclose. Make sure to keep the insurance current while your name is still on title and inform the insurance company if you move out.