Chapter 13 questions- 2nd lien settlement

[underwater2]

I had a few questions but would also like to get any other thoughts on what I might not be considering or asking my attorney. I am planning on filing Ch 13 in 30 days to strip the 2nd.

I am trying to settle with the 2nd for 20% of the balance by borrowing $. They have basically told me they will not settle. It doesn't seem like they will settle at this point but I am still trying. Any ideas on how to get them to settle and when? 2 weeks before filing? Any one settled at the last minute?

Can family pay for an existing bill while I am in bankruptcy? Could a relative pay for preschool?

Can family give gifts to you during bankruptcy?

How much premium should would you pay to avoid filing bankruptcy? If I will pay 15K in payments+ 4K to atty + 15-20k(premium)? My only debt issue is the 2nd so if I can make it go away I am OK.

Thanks for any advice and thoughts. Best of luck to everyone here.

[Pandora]

well, you need to compare what a 13 would do for you if you stripped the 2nd vs. settling; how far behind you are, the amount you owe on your 2nd, the amount of the 20% - and then what your 13 would be (3 or 5 year plan). You also need to ask/consider if the 2nd does agree to settle - will they fully release the lien for the settlement amount - or will they accept your money and 1099 you the difference at the end of the year? Does the Mortgage Forgiveness Act apply in that instance? Most 2nd mortgages wont even consider settling until you are at the 1 year mark - and even then, its very hard to get them to settle. Are you certain your house is worth less than what is owed on the 1st mortgage? Do you have all of the money up front now? If you do...know that its an asset in a BK and can be taken if you cannot exempt it.

If you file 13 - all of your debts and current expenses must be put into your plan - and you must be able to afford to fund a 13 on your income as of filing. You should not have your family paying for preschool as that is a monthly expense for you. If your family wanted to buy you groceries or pay a bill for you once in a while, I dont see where that would hurt however....again if you cannot afford the plan on your income, then you will ultimately fail. A Ch. 13 is very eye opening if you've never budgeted - the money you have is it - there is no backup.

[underwater2]

Thanks Pandora. I left a few things out of the orig. The money for a settlement would be a loan from family. We do not have the assets ourselves. We are close on the 5 yr payment plan( per my calcs) and I was jsut wondering if we excluded something from the plan like presechool- could that be paid by someone else. He only has 2 more years and a family member would have no problem paying that for us if need be. I was just wondering if that could be done. Yes I know this has been an eye opeing experience... Thanks for the feedback.

[walkthaplank]

Are you able to file for CH7? If you are, I would, have the second discharged, and then after your case is closed, go back and negotiate with the bank that is now holding a lien that is effectively valueless. They can't collect from you and they realistically can't foreclose because they would have to buy out the 1st lien to do it.

It SHOULD be a simple negotiation, let me buy this worthless paper from you for more than you would get out of it over the next 10 years, I would start at 10%. Real estate isn't going to make a drastic turn around in the next several years, they aren't likely to ever see a return on that investment if they hold the paper.

You cannot go borrowing money in a real sense during the course of your CH13 without trustee/court approval. If you borrow the money first, you have to include that loan in your filing and it will be paid back at the same rate as the rest of your unsecured debt. If you are stripping your 2nd, just let the second be stripped through the court and the 2nd will be changed to unsecured status and be paid at the same rate as the rest of your unsecured debt.

[nichole04]

I would definately do a chapter 7 if you can and if your underwater with your 1st mortgage. I have recently gotten a discharge in chapter 7 and have negotiated settlements on my 2nd mortgages for 5% for each of the balances. The key is to be discharged and don't reaffirm ANY mortgages, and you should owe more on your 1st mortgage than your house is worth leaving the 2nd's totally unsecured. I would start with a 5% offer and then go up if you have to but I think your negotiating power is greater AFTER you receive the discharge since you are no longer legally liable for the debt.

[underwater2]

Thanks for the feedback. I guess the reason I am avoiding 7 is that we really want to stay in the house and I figure my payment will be 300-400 per mth. I only have 2K in CC debt but have equity in 2 cars about 15K. I am over the median but pass the means test according to the NOLO model. Does this allow me to file 7?
Pros I see of Ch 13
- Lien strip (although my appraisal is only 4K less than my 1st)
Keep all my non-exempt assets

Cons- No guaranteed I can make it through to the end of 5 years
Someone looking over my shoulder for next 5 years
Will the bank contest the appraisal?

I have met with 2 attys and neither really suggested 7 so I keep thinking 13. I guess I am nervous that the bank won't settle once I file I will be in a good position too.

Questions- How is equity handled in a Ch 7. Will they make me sell the cars or can I borrow from family to buy the equity in them? Thanks in advance for your ideas and thoughts.

[Pandora]

Underwater2 -

Non-Exempt Assets - the equity in your cars will more than likely have to be paid into your plan if CH. 13 if you want to keep them; in CH. 7 - Trustee's have been known to take them. You can negotiate to buy them back but again, you'll have to have the $ upfront to do so. In Ch. 13 since you are over median - your plan would be 5 years - and you must have enough DMI to cover that equity in your vehicles since you will be paying it back through the plan along with any other debts you have. This is what we had to do, except we were under median but had 36K in assets not exempted (vehicles, tax return kept) - our plan goes for 5 years because of that 36K - our DMI is about $600 a month. We could've let the Trustee take the vehicles, but given they were paid off and newer than not, we said no.

Lien Strip - you have to be 100% certain you'll be able to do it. Getting a true appraisal (I think its on the URAR form) and walk-through of your property usually trumps any CMA or BPO done. If you're even $1 over from value to 1st, you cant strip it. Given you are so very close in value, you may be in a harder fight. The actual strip will have to be done either by AP or by motion, you need to see which for your area.

You state your payment would be $300-400 a month in a CH. 13 - what are you basing that off of? You have to make sure that your vehicle equity is included (minus any exemptions you're allowed). So say you get $2000 in exemptions for your car(s) - leaves 13K; just on the 13K your payment over 5 years would be $216 roughly - plus Trustee fees and any attorney fee's if you rolled them into your plan.

Dont go into a Ch. 13 if you dont know for certain you can finish it. Is it hard? Yep you bet it is - but its not meant to be a punishment to the debtor. You have to make sure you can afford it upfront first and foremost or you'll set yourself up for a failure and have to convert.

[daytona]

My understanding is, 1/2 of any unused homestead exemption can be used as a "wildcard" to apply towards your vehicles, etc. So if you and your wife don't use any homestead (why would you if your 1st is more than your home is worth AND most mortgages state that you "waive" any homestead exemption anyway) You could EACH use ~10,125 in unclamied homestead exemption to put towards vehicles, etc in addition to the ~3250 you get for each vehicle anyway. You get the higher of Federal or State exemptions with some quirky exections for those states with very high exemptions....but generally speaking you can use the 10,125, each, anyway. If you can get into a CH7 it is usually much better if you aren't trying to "protect" anything, in your case it only sounds like cars..?? Think about it, it's over quickly and you can get on with your life as compared to a 5yr plan...If you are "high income" and have a fair amount going out towards secured debts (your home) then in many cases you can still get into a Ch7. If you don't reaffirm the 1st and keep paying it you should be OK there, the 2nd is riskier with a CH7...there is no guarantee they will settle...again if you don't reaffirm it you aren't responsible for it, but it's still there. It's unlikely the 2nd would foreclose considering you are underwater when you add in cost's, etc. Depends on your area and all sorts of things, how fast would realestate come back, etc...Listen to your attorneys, but provide some narrative on the CH7 approach for your situation...only they, and you, know the "total picture". I spoke with 4 different ones and the first 3 said during the consultation that I would have to be Ch13, the other provided some insight on why I could do a Ch7 and he has a retired federal BK judge on staff who sat in with us and didn't see any problems...BUT this last atty really took some time to understand my total picture (which is pretty complex) I havn't filed yet, but plan to use this firm when I do.

[momofthree]

My understanding is, 1/2 of any unused homestead exemption can be used as a "wildcard" to apply towards your vehicles, etc. So if you and your wife don't use any homestead (why would you if your 1st is more than your home is worth AND most mortgages state that you "waive" any homestead exemption anyway) You could EACH use ~10,125 in unclamied homestead exemption to put towards vehicles, etc in addition to the ~3250 you get for each vehicle anyway. You get the higher of Federal or State exemptions with some quirky exections for those states with very high exemptions....but generally speaking you can use the 10,125, each, anyway. If you can get into a CH7 it is usually much better if you aren't trying to "protect" anything, in your case it only sounds like cars..?? Think about it, it's over quickly and you can get on with your life as compared to a 5yr plan...If you are "high income" and have a fair amount going out towards secured debts (your home) then in many cases you can still get into a Ch7. If you don't reaffirm the 1st and keep paying it you should be OK there, the 2nd is riskier with a CH7...there is no guarantee they will settle...again if you don't reaffirm it you aren't responsible for it, but it's still there. It's unlikely the 2nd would foreclose considering you are underwater when you add in cost's, etc. Depends on your area and all sorts of things, how fast would realestate come back, etc...Listen to your attorneys, but provide some narrative on the CH7 approach for your situation...only they, and you, know the "total picture". I spoke with 4 different ones and the first 3 said during the consultation that I would have to be Ch13, the other provided some insight on why I could do a Ch7 and he has a retired federal BK judge on staff who sat in with us and didn't see any problems...BUT this last atty really took some time to understand my total picture (which is pretty complex) I havn't filed yet, but plan to use this firm when I do.

Please note that the OP is in FL. These exemptions are not valid in FL. FL has very stingy exemptions....

[daytona]

I have no idea about Florida laws, but wouldn't federal law trump their state law? Just asking.

[momofthree]

I have no idea about Florida laws, but wouldn't federal law trump their state law? Just asking.

No. Federal exemptions are not allowed in FL. Only a handful of states (I think it's around 13 or so) allow the federal exemptions to be used.