Considering converting to 7 - thoughts/advice?

[JenR]

Background: Filed ch 13 in 1/10, confirmed 3/10 ($505/mo for 36 months)... 5 payments already made. Barely qualified for a ch 7 (was over median income, but secured debt and expenses pushed us over I guess). Filed ch 13 in order to keep house, strip 2nd mortgage ($50k) and get rid of credit card debt ($50k). First mortgage owed = $255k. House worth roughly $220-240k. Our bk payment is 0% payback. The only thing we're paying for is my car, trustee fee and attorney fee.

Due to a 15% decrease in income, we are now considering letting go of our house, converting to a chapter 7 and getting a true fresh start. Our only reservation is that our house is really not upside down (at least only minimally so). We are paying $3000/month mortgage payment, because we have a 15 year mortgage (which we are already 5 years into). I could take the house or leave it (it's nothing special, but it's not a money pit either). My husband, on the other hand, would prefer to keep it because he sees it as an investment towards his retirement (when he retires in 13 years, the house would be paid for, therefore it can be sold and the cash could be use to purchase a home we would retire in, out of state - where the cost of living is MUCH cheaper).

So I guess what I'm looking for are some opinions on our particular situation.... is it worth sticking it out for the remaining 31 months and seeing the chapter 13 through to the end (occasionally having to borrow money from relatives to cover extra costs, such as school clothes for the kids, or vehicle registration fees); or throw in the towel and convert to a 7?

[momofthree]

You and I have pretty much twin situations, except that we're in a 60-month plan because we couldn't afford to pay our car off in 36 months.

We chose to keep the home because we were able to qualify for a HAMP modification, which dropped our payment down to 31% of our income, making the payment quite affordable. They did extend our loan term, so instead of having 10.5 years left, we now have 12.5 years left on our loan, but it's worth it for the $600 monthly savings. For US, we recognize that if we weren't forced to pay the money to the mortgage, it would get blown on crap we didn't need, and in 12.5 years we'd probably still have very little savings and still having to pay rent somewhere. The sacrifice of living a very frugal life right now will definitely pay off when the house is owned free & clear & in 56 months, when our bk is over, we'll have an extra $610/mo (our plan payment), and less than 8 years left on our mortgage.

We may need more details though. Why would you need to borrow money from relatives for school clothes, registration fees, etc. Is your budget so tight that you weren't able to include any clothing or car operation expenses into your budget? If that is the case, then it MAY be a good idea to let the house go and convert to a ch.7 so that you can live now!

However, if you were able to claim IRS standards, you may just be needing to learn to live a bit more frugally. Learning to live within your means is tough at first when you've been used to relying on credit to make up for any shortfalls, but it's a lesson that will stick with you forever and is absolutely worth the short-term pain.

My dh is a CA state employee and we've been hit with a 15% paycut too, in addition to rising expenses from caring for an autistic child, so I truly feel your pain. It's tough out there right now!

[SMinGA]

One thing to assess is how much $ could you save monthly by renting? Though you might also need to adjust withholding to take out more taxes, due to not having the home interest deduction.

Let it be a business decision... Is the amount you could save monthly significant enough to give up having a paid-in-full house in 10 years? And have you contacted your lender to ask about a mortgage modification? Might not hurt to see what they say...

[JenR]

momofthree: we were doing fine until I sudden got hit with the 15% reduction in pay (I didn't initially have it, when we filed out plan). We've got an appointment with our attorney, in a couple weeks, to discuss reducing our plan payment - however, I don't see how that'll be possible since we're already paying the bare minimum anyways. The last several months have been really tight, budget wise, and we've cut back on everything possible (cable, phone, cell, groceries, etc).

SMinGA: that's an excellent idea, I'll have to do some projections to see which would be the better business decision!

[SMinGA]

Since you're in a 36 month plan @ 0% to unsecured - you would not be able to cut the plan payment and keep the car unless you increase the payback term. I imagine since it is possible to amend one's plan, it should be possible to extend from 36 to 60 months - lowering the amount paid per month.

[JenR]

...and if that's the case, SMinGA, I'd much rather just suck it up for the remaining 31 months, rather than extend the plan to 5 years! The sooner this is all over, the BETTER

[billf1980]

...and if that's the case, SMinGA, I'd much rather just suck it up for the remaining 31 months, rather than extend the plan to 5 years! The sooner this is all over, the BETTER

If you have a stable job, then sticking it out makes more sense. Also, you are in a decent position on the home, and you are almost done with the chapter 13.

If you get out, then you will have to move and put another down payment on another home. And you are talking 10 years of the chapter 7 on your credit report vs. only a few more years with the chapter 13.

good luck!

[mrslick]

you'll be crazy not to sitck out, you're not back anything creditors except your car. I agree with bill1980, you don't really have to start over if you stay in the plan. plus your plan is 3yrs not 5yrs. a lot of people will love to be in your situation, so do your best to stay in the plan and stay under your trustee's radar by making your payment on time. good luck.