Crossroads - need advice

[wannaknowleo]

Hi all,

I'm in a mid-west confirmed chp 13 (May 2010) and we qualified for a chp 7 from the start, but we chose to go the chp 13 and keep assets (house, cars). Filed chp 13 due to mortgage arrears, back taxes. I have two cars, arrears and back taxes in the plan. My wife wants out, now. We have three kids and are in a 60 month 0% plan. Should we convert to a chp 7 and give up the house? Were underwater and the second lien was stripped and I don't see the equity returning in the next decade (were not married to the house either). We inially chose to keep the home so we wouldn't disrupt the kids, plus we had to emergency file due to a lawsuit so we had no time to really think it out. In hindsight, we should have just walked away and filed chp 7. Should we convert or stay in the chp 13 and stick it out? The payment is livable, but a challenge none the less. The plan does have step increases due to retirement loan payoffs throughout the plan.

We make 90K yearly and net 5K monthly. With three kids and constantly changing needs, its difficult monthly to provide things they need. One child needs intensive tutoring, another braces, and one is in daycare. So in essence, we want out, but don't know if that's the best thing do for our family. Any advice?

[FishersMike]

Hiya,

I am still new around here so I am sure the experts will chime in. But what I would ask is:

How much is your current house payment? How much would it costs you to rent a place (if near Detroit probably not much )

How much taxes you owe in the plan? If they cannot be discharged in 7 do you have an idea what kind of payment arrangement you could make with the IRS?

Are you going to want to keep the cars? If so, you may need to do a Redemption Loan which interest is steep.

I am not sure if the Lien Strip stays away if you convert to a 7 - so I won't answer this one. But it probably wouldn't matter anyway if you give up the house.

So basically what I would suggest is to calculate your monthly essential payments with your new rent, IRS payment arrangement monthly payment, vehicles, etc. and see if this payment is more or less than your current plan payment. You may actually find your new payment doing a 7 could be worse due to interest, etc. This may help influence your decision..... good luck!

[Pandora]

Agree with FishersMike - you need to weigh what it would cost you ultimately to convert to a 7 given you have all secured items you're paying in your plan. As far as if the lien strip remains if you file Ch. 7... no - your lien isnt officially stripped until you complete your Ch. 13 plan and receive a discharge. If you convert, your 2nd comes back into play in full.

[wannaknowleo]

Thxs for the advice, taxes are only 2K so that's easy to fix. If we could walk away from the cars, well at least one car, that would be fine too and its the most expensive with a lot of mechanical problems. Even with the car payments I could "catch those payments up" with a loan from my 401K. Current house payment is 1500 and rent would be at or near the 1500. The thing is we could buy a much larger home in a couple of years while the prices are dirt cheap that has what we need and want. Were in a situation where the repairs on the current home would be in the 10's of thousands (new roof, windows, kitchen, basement etc) and it may make sense to give this up and buy something better in a couple years.

[Pandora]

Are you sure you qualify for a Ch. 7? 90K for a family of 5 is over the median so you'd have to be able to do it on negative DMI.

Have you discussed with your lawyer about possibly amending your plan - giving up the car and then adjusting your schedules? Are you at, above or below IRS standards?

[wannaknowleo]

Yeah, we were really negative DMI due to student loan payments we owe 100K. We just feel like we made another wrong decision by going a chp 13 when we could have had a fresh start with a chp 7 in 3 months vs 5 years. If we give the home back in a chp 13, the second mortgage goes away too right? I am assuming that the debt on the secord mortgage would be canceled and we won't owe if we give the home back in a chp 7? Am I on the right or wrong track with this thinking? I don't think in Michigan a the mortgage company can come after us if we give back the home, but I could be wrong?

[Pandora]

If you give up the house in a 7 - then your personal responsibility to the note is removed. Whether or not a lender can come after you for any deficiency depends on if you're in a recourse or non-recourse state.

Michigan allows student loans to be paid while in a 13 plan? I thought you had to put your loans into forbearance until your plan was completed...

[NoTomatoCan]

Michigan allows student loans to be paid while in a 13 plan? I thought you had to put your loans into forbearance until your plan was completed...

I have not heard of any MI Trustees allowing a debtor to payback student loans while in a CH13 unless they are in a 100% plan (and trust me, with $140k in student loans, I heavily researched it - LOL).

[Pandora]

I have not heard of any MI Trustees allowing a debtor to payback student loans while in a CH13 unless they are in a 100% plan (and trust me, with $140k in student loans, I heavily researched it - LOL).

Hiya NoTC ...I'll bet you did!

[wannaknowleo]

No, the student loans aren't in payback status while in the chp 13 and were in a 0% payback plan. The loans are in forbearance until the 13 is over, but once payments resumes or is used in dmi calculations based on our current situation and income, there's no way we could do it all. However, if we get a fresh start in 3 months we could buy another larger home at a much more reasonable price than what we paid for our current home and be in a position to also handle our student loan payment, which has a very low 2% fixed rate. I also haven't reached the top of my career ladder and still have 30 years in the workforce (and I'm tenured).

[momofthree]

You'll need to have negative dmi without the student loan payments in order to qualify for a ch.7. Since you're giving up the house, you won't be able to use that payment, taxes, insurance, or maintenance on your schedule J either. You may be stuck in the ch.13.

Good luck and keep us posted on your progress.

[wannaknowleo]

Sorry, I don't know all the lingo, but I'm assuming I qualify for a chp 7 because my attorney said I do and that I had negative dmi even though I don't know what that means exactly. My attorney said it was our decision and that he wasn't going to suggest one over the other but did say that he earned more if we go the chp 13. We didn't use all of the irs maximums for a family my size, I do know that much. I hope this claires things a little more.

[newbie2]

Sorry, I don't know all the lingo, but I'm assuming I qualify for a chp 7 because my attorney said I do and that I had negative dmi even though I don't know what that means exactly. My attorney said it was our decision and that he wasn't going to suggest one over the other but did say that he earned more if we go the chp 13. We didn't use all of the irs maximums for a family my size, I do know that much. I hope this claires things a little more.

If you're comfy with your attorney (and the advice from the attorney), and have decided to give the house back then do it. Get out while you can from under those 2 mortgages. Good luck to you.