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Another Should we File Question (don't shoot me)

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    Another Should we File Question (don't shoot me)

    Hi everyone, the title says "we" but it's actually my DH who might file.

    Our situation is a little unique and I've searched through old threads but haven't found a case like ours yet.

    My DH and I both owned homes prior to our marriage. Both homes are underwater because we bought right before the market crashed in 2008. I currently work part time but I am losing my job soon. I have money saved in several different savings accounts that are in my name only. I have some stock options which I need to exercise shortly after my last day at work. The stock options will be paid to me like earnings and will go into my personal checking account. I do not plan on going back to work because we have a young child. I have no credit card debt and my mortgage is up to date and we live in my house. I have significant student loan debts as well which are being paid by my DH.

    My DH has about $15K in credit card debt. We tried to do a short sale on his house but the bank is refusing to approve it and now want my DH to sign a very large promissory note (I think they are asking for $85K). And even if they did approve the short sale, because the mortgage forgiveness bill was not extended to 2014, we could be on the hook for a large tax bill. The lawyer we've been working with about the short sale is advising my DH to file for bankruptcy. We're meeting with the attorney next week but based on our finances I'm assuming we would have to file Chapter 13.

    We live in Illinois which a tenancy in entirety state so my DH's creditors cannot come after my savings because it's not real estate. I understand my part time earnings would be included in the means test and I think it will push him into Chapter 13.

    My savings plus the stock options would probably be enough to pay off my husband's credit cards and the amount my husband's mortgage holder is asking for. Alternatively, I could also use that amount to pay off my student loans in full. But then we would have no savings and there is no way with the my husband's earnings that we could save the same amount of money again.

    We don't care about saving DH's house and my DH has no property he needs to protect. All he has is his house and his car which will be paid off in about 9 months).

    What do you guys think about this? Is a large foreclosure deficiency (probably about $80K to $100K) be worth filing even if the credit card debt is relatively small? I just don't see any other way out of his mortgage other than bankruptcy.

    I was thinking that because I have savings and credit cards that we could get through DH being in Chapter 13 in good shape. We can live on his earnings without dipping into the savings and if an emergency arises we could pull money from my savings without accruing additional credit card debt.

    #2
    Welcome to BKforum, Dancer. Don't worry, we don't shoot people very often.

    Don't assume you won't qualify for a Chap 7 until your attorney runs the numbers. If it is your income that makes the difference, you may want and file after you have been unemployed long enough to sufficiently reduce household income.

    Make sure to ask the attorney whether exercising your stock options will result in income for purposes of the means test.

    I think a mortgage deficiency of that size makes it worth filing. But, if the bank forgives the deficiency, your husband may also be able to have the forgiven amount excluded from taxable income if he is insolvent immediately before the debt is forgiven. See IRS Publication 4681 for information on how to determine insovlency: http://www.irs.gov/pub/irs-pdf/p4681.pdf. If your husband is insolvent, he could wait to see if the bank gets a deficiency judgment after foreclosing.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

    Comment


      #3
      Thanks. Here's another little complication. My husband owned a home with his ex-wife which they've never been able to sell. His ex-wife currently lives in the house. As part of the divorce agreement, he is to pay the 2nd mortgage on the house and his ex-wife is to pay the primary mortgage. His ex-wife refinanced and removed him from the original mortgage and I think removed him from the title as well. This house is probably not technically underwater but is in a town with a saturated real estate market.

      I've read about lien stripping of 2nd mortgages in chapter 13 but is that an option if the debtor doesn't hold the primary mortgage?

      ETA, I see now that lien stripping is only available for your primary residence so this loan shouldn't qualify (DH's ex lives there).

      And 2nd question, since I won't be filing and will not be working, can my student loan payments be taken into consideration when coming up with the plan if we do Chapter 13?
      Last edited by Dancer; 04-23-2014, 02:13 PM.

      Comment


        #4
        Hi there, I am not positive but I do not think student loans are considered. The put them in forbearance and you have to pay them eventually anyway. If you can continue to try to pay them it's not considered an expense while in 13. That's my take anyway!
        Discharge date: October 2017 (will it ever get here?)

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          #5
          Thanks but would my student loans go into forbearance since I am not filing?

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            #6
            Originally posted by Dancer View Post
            Thanks but would my student loans go into forbearance since I am not filing?
            Your husband's filing should not affect your student loans. The payments will be a deduction from your contribution to household income.
            LadyInTheRed is in the black!
            Filed Chap 13 April 2010. Discharged May 2015.
            $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

            Comment


              #7
              Oops sorry misread this! I always feel kind of jealous when a married couple has one that doesn't file! You really are lucky that way! Good luck!!
              Discharge date: October 2017 (will it ever get here?)

              Comment

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