13 to 7 conversion......

[videoguy46]

Hello all,

I'm coming up on completion of year 4 of a CH13. However, since I had my lawyers file motions over the last 3 years to keep my Fed Tax returns due to job loss, bills, car repairs, etc, my BK payment has gone up significantly. Well, I've lost another job due to a work related injury. My workers comp claim was denied & I am talking to a lawyer to try & recover lost wages. So, I'm trying to figure out if converting to a CH 7 is the best possible scenario for us? The thing I'm trying to avoid is surrendering the house. I have kids & would like them to stay in the same schools, etc. My house is underwater as I paid 165K for it 8 years ago, & now homes are selling for 65K on my street. There is no equity for them to extract. My wife works full time & brings in about 1300/mo & right now I'm only able to bring in about 400/mo or so. My BK payment is coming up & I'm afraid this may be the first time it may bounce. The good news is I'm finishing up a degree in May & have a few job prospects, but thats a few months away. Any advice would be greatly appreciated.

Thanks,

VG

[HHM]

Was one of the reasons you filed BK to cure a default on your mortgage payment?

If yes, then you have a potential problem. You must cure the arrears. If the arrears have not been cured, and you convert, you are right back in default and the bank can/will foreclose. If you have little income, you can't get a modification because you have no way to pay any mortgage payment. So, if you convert, you will lose the house. But, I understand, if you stay in the chap 13, and have no way to pay, the issue is really moot.

Now, if the arrears have been cured and you are otherwise current on the mortgage, then you may convert and the house is a non-issue. (so long as you keep making the mortgage payment).

[videoguy46]

Yes, that was one of the reasons. When I filed I was still making good money, about 50k/year. Then about 6 mos later I was let go from that job & decided to go back to school.
The arrears are about $3700.00. So, I guess the house is lost if I go to Ch 7. If I do convert to a 7, how long before I have to move out of the home? What I dont understand is why cant they readjust my BK payment according to my current income? When they set all of this up I was still making good money, now I'm making at least 2/3 less. Can the case be modified?

[HHM]

If you are in year 4, unless you payment was minimal, I must imagine that the arrears have been paid by the trustee at this point.

Yes, a chapter 13 payment CAN BE modified. The issue is that the plan probably has a certain minimum that must be paid, the administrative claims (e.g. attorney fee and trustee), mortgage arrears. Also, if your attorney had to file motions for you to keep your tax refund, then I must presume that originally, the plan was to have the refund paid into the plan. As such, there may be a reconciliation issue. The court allowed you to keep non-exempt tax refund, but with the expectation that you would pay the value back over the remaining life of the plan. So again, the problem may be that your plan requires a certain minimum amount to be paid and with only 12 months to go, the payment cannot go any lower.

However, this may be a time to figure out if the arrears have already been paid by the trustee.

[justbroke]

If you convert, you should realize that you could lose the home, to foreclosure, if the arrears are not all paid and you are current. Having wrote that, let me tell you my story. I filed to save my investment property. I ended up moving into one of them after I filed Chapter 13. I did a lien strip and was curing the arrears through my confirmed plan. I realized that being in Chapter 13 was not working -- as I qualified for a Chapter 7 to start with. I swallowed my pride and came to the realization that I still had arrears and could lose the home in the Chapter 7 conversion.

Well, I did it and then the bank did something mysterious. They offered a modification to bring the loan current! Yes, I converted to Chapter 7 and had a modification before I reached discharge. I'm not trying to raise hope that this could work, but it is possible. You must first realize that you could lose the home and prepare for the worse.

I agree with HHMs assessment. The reason for your payment amount could be tied to something else. You will need to work all the numbers and see what makes financial sense.

[videoguy46]

Thanks for all of the advice. How can I find out for sure if the arrears have been paid?
Also, how can I find out what the minimum is?

[justbroke]

Thanks for all of the advice. How can I find out for sure if the arrears have been paid?
Also, how can I find out what the minimum is?

Do you subscribe to 13DataCenter? If not, look up "13DataCenter" and then register. You will be able to review the payments made by your Trustee for each creditor.

You could also just ask the Trustee's office.

[videoguy46]

Yes, I did subscribe to the site earlier today. Here's what it says about it...

GMAC MORTGAGE LLC A-ARREARS 100%
claim amount $3,783.50
principal paid $3,783.50
int paid $0.00
sched amount $3,000.00
principal owed $0.00
mo payment $0.00
int rate 0%


Does this mean its paid? Not sure what "scheduled amount" is?

[justbroke]

Yes, it means it is paid. Looks like the original amount was $3K but with interest... it ended up about $3.7K. So, I would verify this, perhaps with the Trustee's office, but it appears that your arrears are already paid just as HHM suggested.

[videoguy46]

Ok, I'll check it out. Now, I do have a second on the mortgage which we were going to lien strip. If I convert to a 7, what happens with this second loan?

[justbroke]

Ok, I'll check it out. Now, I do have a second on the mortgage which we were going to lien strip. If I convert to a 7, what happens with this second loan?

If you are not in Florida, then the lien strip will be vacated and you will be at the mercy of the 2nd mortgage lender. (Some Florida bankruptcy courts are allowing lien strips in Chapter 7s!) As for whether the lender would come after you, I can't even guess and no one knows for sure. You might be able to settle with them after the Chapter 7 is discharged... but having the unpaid 2nd is a wild factor.

[videoguy46]

Ok, I talked to my lawyer, & everything you guys have told me is on the money. Now, she told me it is possible to contact my lender to try a loan mod/refi in order to get my payment down. Cant I also do this with the 2nd as well? My home is surely under water as I paid 168k 8 years ago, & homes around here are currently selling for 50-60k. She also said: "If you decide to surrender the home in a Chapter 7 you will have 6 months from the date of any date the mortgage company sets for a foreclosure sale plus any time leading up to the scheduling and execution of the foreclosure sale to live in the home". Because I have kids, school, & their emotional attachment to the home & neighborhood, I want to do this as slowly/smoothly as I can. So, is she saying we can basically squat in the home for more than 6 mos without making a payment?

[justbroke]

Yes. Once you make that decision, you just stop paying and let them foreclose. You are not squatting because you technically, and actually, own the home. It's your house!