"It's complicated"

[15951a]

I'm considering Chapter 13, and am visiting a lawyer on the advice of a real estate attorney that reviewed my situation. I have the following debts:

$231k 1st mortgage
$159k 2nd mortgage

Current value of home is about equal to 1st mortgage.

In addition to the above, I have:

$20k in student loans
$94k in unsecured credit card debt
$19k in car loan debt

I know - a lot of debt. Household gross salary is high at $183k, but not sustainable with the above debt. Here's the sticky part: Forced relocation will result in salary of $99k, and other salary is uncertain.

Questions:

1. The forced relocation and change of salary will not happen until early next year. How is this accounted for in Chapter 13? (i.e. should I wait to file?)

2. Am I better off not having a 2nd salary and keeping it at $99k? That is, if job = more money, will the court "punish" me accordingly?

3. I don't want the house, as I'm relocating. Will Chapter 13 allow it to be given back? I know many use Chapter 13 to keep a house...I'm in the exact opposite situation, and selling would result in a $150k upside down situation.

Thank you for your input.

[newbie2]

First the house: You can surrender it in a Chapter 13 plan. As far as the relocation and salary decrease: If you can wait to file, that would be best. Ideally it is good to have all of your income and expenses be accurate at the time you file, than to have to amend it all after you file. Your whole financial picture will be changing (new housing area with new expenses, new salary, loss of current mortgage payments, etc.) Get yourself settled in your new job and new living quarters, then file.

As far as the 2nd salary you mention, is this a 2nd job for yourself, or a spouses job? (You don't mention family size).

[15951a]

The 2nd salary is spouse's job after relocation. Question: If we file with one income and subsequently have an increase in income through spouse's job, does the court reexamine the structure of the deal to include the 2nd income? If so, I'm failing to see why the 2nd job would even be a benefit!!!

As far as the 2nd salary you mention, is this a 2nd job for yourself, or a spouses job? (You don't mention family size).

[FishersMike]

Whenever you have a change of circumstances (from everything I have read here) the Trustee will have you re-do your forms and calculations -- and essentially in your case your payments would increase unless you were able to justify even more eligible expenses.

But I am new here so I am sure one of the experts will answer with more details.

[newbie2]

The 2nd salary is spouse's job after relocation. Question: If we file with one income and subsequently have an increase in income through spouse's job, does the court reexamine the structure of the deal to include the 2nd income? If so, I'm failing to see why the 2nd job would even be a benefit!!!

When you are in a Chapter 13 plan you are supposed to disclose any financial changes to the trustee (via your attorney). That would include both a salary increase or a salary decrease. Keep in mind though that not all trustees are going to reach into your pocket for more money. It varies by district. If it is a substantial amount of money though I am sure the trustee will want something of it to distribute to your creditors.

Always remember: Your whole financial house is the business of a Chapter 13 trustee during the life of your plan.

[15951a]

With our anticipated income and an approved short sale on the house, I can clear up the unsecured debt in 4 years without declaring bankruptcy. It sounds like Chapter 13 will take 5 years and completely destroy my credit.

I've currently never made a late payment on my house or to any creditors. From the sounds of things, I'd be better off figuring this out on my own. Please let me know if I'm missing something here.

[catleg]

Chapter 13 won't destroy your credit. Dropping your income from 183k to 99k with 94k in card debt plus the student loan and the car loan sounds like too much. Do you have any savings? Doubt it, nobody here does.

Consider that in a ch13 you can contribute to a 401k and pay back 401k loans. (the extent varies by district, but is in theory unlimited). So if you have a 401k, you could tap it for a loan to pay off the student loan, get your 401k contribs to the highest extent you can afford, then file ch13. Money you save in a 401k is exempt. Dollar for dollar that is money going into your savings instead of to unsecured creditors. Likewise the 401k loan is an exemption, enabling you to get out from under the student loan. If you play your cards right you can get out from under that card debt for minimal cost.

Even if you end up paying them all off at 100%, you're no worse off than before.

[jrippon]

Expect to pay a significant amount to your 2nd mortgage holder in a short sale if you want to avoid a deficiency judgment. I started down the short sale path but filed bankruptcy when Chase wanted 50% of the 2nd mortgage balance (over $50k) to give up their right to pursue a deficiency. I've seen a few other posts on this board from people that sold short and are now filing bankruptcy because of a deficiency judgment.

[15951a]

Expect to pay a significant amount to your 2nd mortgage holder in a short sale if you want to avoid a deficiency judgment. I started down the short sale path but filed bankruptcy when Chase wanted 50% of the 2nd mortgage balance (over $50k) to give up their right to pursue a deficiency. I've seen a few other posts on this board from people that sold short and are now filing bankruptcy because of a deficiency judgment.

I understand that, but what's the difference between having an attorney negotiate with the bank for the deficiency judgment and paying for a good part of it anyway over the course of 60 months? Other than the tax benefits, I see no difference. Our combined household income will likely be enough to pay back the majority of the deficiency over 60 months, so either way we're screwed.

[jrippon]

One big difference is that negotiation is not a certainty, and bankruptcy is law. Chase originally would settle for nothing less than 100%, I hired an experienced negotiator and the best offer he could get was 50%. Based on my DMI, my plan payment will be $855 for 54 months (fingers crossed, confirmation next month) -- this is less over five years than the amount required to settle the second mortgage, wipes out my CC debt ($20k), and I keep the house. Also don't have to pay any pesky debt forgiveness taxes (would have been about $15k). My income is only 5k less than yours, but my wife doesn't work. With two incomes your DMI will be higher. You should do a rough calculation to figure what percentage of debt you would have to negotiate away to come out ahead of bankruptcy in five years. Make it a business decision. Pick the option that screws you less.