Really confused about Equity Lines

[mtbjoe]

About 6 years ago my wife lost her job and we ended up getting into trouble. We quickly built up a ton of credit card debt paying bills and eventually refinanced our home. When everything was done we ended up with the following:

Primary Mortgage: 417k (conforming limit at the time)
2nd heloc: 65k (interest only variable)
3rd heloc: 115k (interest only variable)
One credit card: 25k

After 5 years we are now down to:
Primary Mortgage: 400k
2nd heloc: 65k (interest only variable)
3rd heloc: 115k (interest only variable)
One credit card: 24k

And no I didn't forget to change any of the numbers

We also have a couple car loans now which aren't too bad and built up about another 6-7k in credit cards and have been struggling every day for 5 years. We can't keep making our monthly payments anymore and the stress is ripping us apart.

We have a good income and while our lawyer is really trying for a Chapter 7 it's not looking that good and the more I read about this the more terrified I'm getting.

Here's the problem, the 3 home loans equal about 580k and the house is worth about 500k now. The 1st and 2nd combined only come to about 465k so it doesn't look like we can strip anything.

What happens with these if I file Chapter 13 and what could it look like after I complete a 5 year plan?

We'd love to end up keeping our home but I have no idea if it's possible in this situation and of course I don't want the bank to come after us for the 2nd and 3rd after we give up our home if it comes down to that.

Sorry for the long post but I won't be able to speak with our lawyer until next week and I'm not sure I can make it that long with this much uncertainty...

Thanks!

[lrprn]

What happens with these if I file Chapter 13 and what could it look like after I complete a 5 year plan?

Since your focus seems to be on keeping your home, you are right - if your home's current value is what you say it is (where did you get the estimate?), then you can't strip any of your three current loans.

What will happen is that the monthly amount you pay on your three loans at filing will be included in your Ch 13 plan payment. You or your trustee (this varies between states and whether you have arrears on any of the loans in your plan) will pay the three home loans each month throughout the life of your plan and your trustee will disburse sufficient funds to pay off any arrears as well.

You will emerge from your Ch 13 owing five years less on each loan, but will still have to pay on all three loans until each is paid in full or until you sell the home hopefully for enough to pay all three loans off in full.

If you are thinking that the artificially driven real estate bubble market that jacked up home values way too fast in a a very short period of time will help make selling your home quickly with sufficient equity left over after your Ch 13 (or Ch 7) is over, it's very doubtful we will ever see that happen again - certainly not within the next ten years or so (hopefully never).

We'd love to end up keeping our home but I have no idea if it's possible in this situation and of course I don't want the bank to come after us for the 2nd and 3rd after we give up our home if it comes down to that.

If you surrender the home as a part of your Ch 13, if you successfully discharge your Ch 13 at the end of your plan you won't owe anything on any of the loans.

Think long and hard about keeping your house if you have any doubts at all about your ability to continue to pay on the three loans on time month after month, year after year during the (likely) five years of your Ch 13 and after your Ch 13 is over. You can't file bk again to rid yourself of the house and walk away for quite a while. See http://www.thebklawyer.com/thebkblog...or-third-case/ to see all the options. Keep in mind that if you file a second bk case too soon, you can't get a discharge.

If you do file Ch 13 (or Ch 7 for that matter), keep in mind that you have a golden opportunity to surrender the house and walk away from the three home loans owing nothing and start fresh. Renting isn't the end of the world, and it's not forever either. Most filers find that they can re-enter the housing market again to buy a house at a reasonable rate after 2-3 years of clean finances after discharge, sometimes sooner.

Talk with your lawyer about what makes the most sense long-term for your family and look carefully at all the possibilities.

[mtbjoe]

Thank you so much Lrprn, that was more comprehensive and helpful than I even imagined!

I got the estimate off of Zillow and I noticed that the few houses that were selling in my area were selling less than Zillow's estimates but not 40-50k lower like we would need to strip the 3rd loan.

I think I see why our lawyer is trying to get us to file chapter 7 now since the end results would be pretty much the same as a 13 but we wouldn't have the 5 year payment plan (which is probably the case for most people). It's still nice to know the 13 is there if the 7 doesn't work and the IRS budget actually looks like more than we have to spend now so at least we have options.

Most filers find that they can re-enter the housing market again to buy a house at a reasonable rate after 2-3 years of clean finances after discharge, sometimes sooner.

I had no idea this was possible. We are new to this and I just heard that your credit is ruined for 10 years so I thought it would take that long before I could finance a candy bar let alone another home. I can't tell you what a relief it was to read that whether we can work that out or not since there's no way I'm going to ever put myself into a situation like this again...

I actually got a quick call from my lawyer yesterday to check on some of the options for the 2 home equity loans and I can actually convert them to 30 year fixed at a much higher interest rate. This would raise our payments a combined $1000 a month above what we are paying on them now which may be enough to qualify for a Chapter 7 but he'll need to be sure before we do that since it seems risky. Doing this would probably also be the deciding factor in giving up our home.

We're trying to be realistic on the house, no one want to lose their home and we should be able to afford ours without the other debt but we've been thinking things are going to get better and work out for 5 years now and it just isn't happening. If our bank would help us out a little by putting our loans in reasonable 30yr fixed rates we could probably keep it but at this point I don't think that will ever happen. I'm going to keep trying until the end but I'm ready to make the tough call if it comes down to it and walk away.

Thanks again for your response and I apologize for crossing the forum boundaries between Chapter 7 and 13 but I feel much more informed now