Convert interest only mortgage to 15yr fixed before chapter 13

[fugazzi]

Hi All,

So we will be filing for chapter 13 at some point in the future. here's the situation:

own house (upto date)
own 1 new car(upto date)
own a peice of land (uptodate and have owned for 4yrs) with 42K balance and an interest only loan that matures in August.
90K in cc debt

We are stopping payment on our cc's so my credit will be trashed in a few months. I'd like to conver the interest only loan on the 42K Lot to a 15yr fixed rate right now, because when the interest only loan matures my credit will be shot and they probably will forclose instead of allowing me to refinance it then. The reason I want to do this is so i can retain the land thru the 13 so i still have it when i'm out, so we can build a house on it.

Am I allowed to do that or is it considered fraud?

[fugazzi]

OH and i'm upto date on my land loan as well.

[momofthree]

It's not fraudulent to refinance the loan prior because you fully intend to repay the loan in it's entirety.

The question is whether or not you will be allowed to claim the payment as an expense. The land is fully separate from your primary residence, correct? It cannot be considered investment property since it doesn't provide income. It is therefore treated as a luxury property. Luxury properties are often allowable in a 13 if they are free & clear (though they are still subject to the ch.7 liquidation test). However, a financed luxury is not usually allowable because it is considered money that should be sent to your unsecured creditors.

The exception is if you're in a 100% payback. In that case, you can keep luxury items without issue.

You'll need to consult a lawyer about your ability to retain the property.

[fugazzi]

Thank you. The payment on the land would cause me not to be able to pay 100 prcent back to unsecured. So sounds like I would have to surrender it

[momofthree]

Most likely, but I would definitely talk to an attorney about the issue. There are exceptions to every rule. ;)