Not paying mortgage, possible divorce, tax penalties discharged and other questions

[womanonfire]

I've think I've finally made the decision to let my house go. Due to a lawsuit against my former mortgage servicer and my stubbornness, I have not made a mortgage payment in over a year. No one is trying to foreclose and I have a lot of equity. I want a true fresh start and not the uncertainty of a chapter 13 long term plan, not when my marriage is rocky and my job may not be stable.

My husband and I never really wanted to look at a Chapter 7 because we wanted to keep the house but we're looking at a possible divorce now after we file and my chapter 7 is discharged.

Since we're not paying the mortgage, what do we put on the schedules? If he is not paying his debts, will I still get to reduce his income contributions to me by what he actually owes including joint tax debt? If I could get a forebearance or loan modification in advance, would that help me at all? If I want to lose the house, I don't see how it would. I can spend my mortgage payments willy nilly or start socking money away in a Roth.

Because of the lawsuit with former mortgage servicer, I have rights of recoupment and set off. The problem is that I ultimately owe the debt to Fannie Mae. My plan is to hold them vicariously liable for previous mortgage servicer.

Finally, if we can protect $43,000 in equity exemptions in a Chapter 7, does this mean the trustee writes us a check for that amount plus the amount of other exemptions once the home sale?

The only other complication in this case is that I'm expecting an inheritance, I hold a 30% interest in a property worth about $120,000. That situation is also complicated but the probate attorney said that he didn't think we'd be out of probate in 8 months, and me getting anything hinges on my brother being able to buy me out of the property so I will have to argue that it's too far in the future to make me wait to get relief. Not sure what that is called. Anyone got similar caselaw in Georgia to share?

See also my other post. Since I'm thinking of filing a chapter 7 now, I may do it pro se. The only other complication is that we sold a business in October 2019 at a loss. I plan to wait the 6 months before filing so looking at April, after we file taxes that we can't afford to pay again.

[justbroke]

I've think I've finally made the decision to let my house go. Due to a lawsuit against my former mortgage servicer and my stubbornness, I have not made a mortgage payment in over a year. No one is trying to foreclose and I have a lot of equity. I want a true fresh start and not the uncertainty of a chapter 13 long term plan, not when my marriage is rocky and my job may not be stable.

While Chapter 13s can be successful, I do see the merits of wanting the quicker Chapter 7 discharge. I've done both.

Since we're not paying the mortgage, what do we put on the schedules?

Well, your Means Test would be what your normal PITI (principal, interest, tax and insurance) payment. You Schedule I/J could be more difficult. I will explain at the end of this response.

If he is not paying his debts, will I still get to reduce his income contributions to me by what he actually owes including joint tax debt?

Marital income for a single filer is included and then only reduced by the non-filing spouse's actual debt payments. Tax debt is tricky and some Chapter 13 Trustees will allocate based on contribution. It can be difficult to navigate with non-filing spouses.

If I could get a forebearance or loan modification in advance, would that help me at all?

A real modification may be the better situation especially for a Chapter 7. See my explanation at the end of this response.

Finally, if we can protect $43,000 in equity exemptions in a Chapter 7, does this mean the trustee writes us a check for that amount plus the amount of other exemptions once the home sale?

The Trustee would only give you the proceeds of the sale for the equity in the home itself. Not for any other property... unless the Trustee is also liquidating other property for which you have only partial exemptions.

The only other complication in this case is that I'm expecting an inheritance, I hold a 30% interest in a property worth about $120,000. That situation is also complicated but the probate attorney said that he didn't think we'd be out of probate in 8 months, and me getting anything hinges on my brother being able to buy me out of the property so I will have to argue that it's too far in the future to make me wait to get relief. Not sure what that is called. Anyone got similar caselaw in Georgia to share?

That's is not a good argument in bankruptcy. You don't actually "wait" for relief since the bankruptcy filing itself provides relief, and the discharge comes regardless of the administration (liquidation) of the case. In other words, the "relief" is the discharge and that comes after the 60-day mark from your 341 Meeting regardless of the Trustee's other actions to liquidate the estate.

Also, remember that the bankruptcy Trustee "steps into the shoes" of the debtor. If you could force a sale, so could the Trustee. The Trustee actually likes future payouts and a Chapter 7 can stay open for years. We had a forum member that had a case open for nearly 4 years. Chapter 7 Trustees will wait out a probate case and even inject themselves into the case because they wield some extraordinary powers.

See also my other post. Since I'm thinking of filing a chapter 7 now, I may do it pro se. The only other complication is that we sold a business in October 2019 at a loss. I plan to wait the 6 months before filing so looking at April, after we file taxes that we can't afford to pay again.

On this one, I don't recommend doing anything Pro Se. You have real property and equity and you need to know the system. I hardly ever recommend going Pro Se when there is property at stake.

Here's the bottom line. You would have difficulty liquidating the home and still trying to file a Chapter 7. This is because you would not be able to show those payments on your Schedule I/J. You may be able to list the Mortgage/Rent amount for your county in your State, but that may not be enough to prevent a Chapter 7 filing from being an abuse and subject to dismissal or conversion.

Hence, this is why I don't think that you should file Pro Se. You have complexities in your case and you have unprotected equity. An attorney would navigate these waters much better than I can.

[flashoflight]

If you go pro se and when it goes bad:

1) You cannot withdraw out of the chapter 7, especially since the trustee will have a payday with the non-exempt equity.

2) Your case will pique the interest of the trustee and he will take every last non-exempt dime from you even if it takes years (8 months is certainly not a problem) vs. the other $70 simple pro se no asset chapter 7 that he processes in a few minutes. He will hire his own law firm out to pursue your non-exempt money and rack up legal fees. The trustee is an adversary who will have a payday at your expense and will not help you. Since you are not represented, it will be even easier for him.

3) Many/most BK lawyers will not take somebody else's case including pro se at any price. If they do, they will charge you a lot more than if let them prepare the initial bankruptcy petition.

Pro se/Upsolve is great for simple chapter 7 cases. Your case is not even close to fitting that definition. Since you are not making housing payments, perhaps those funds can be redeployed to pay for a lawyer. Most people use the funds that would be spent on monthly debt payments to raise the funds for a lawyer.

[womanonfire]

A real modification may be the better situation especially for a Chapter 7. See my explanation at the end of this response.

Here's the bottom line. You would have difficulty liquidating the home and still trying to file a Chapter 7. This is because you would not be able to show those payments on your Schedule I/J. You may be able to list the Mortgage/Rent amount for your county in your State, but that may not be enough to prevent a Chapter 7 filing from being an abuse and subject to dismissal or conversion.

Thank you once again for your very comprehensive reply Justbroke. I'm not sure I understand why a modification would be better if I'm trying to just get rid of the house. Do you mind explaining a little more?

The Trustee would only give you the proceeds of the sale for the equity in the home itself. Not for any other property... unless the Trustee is also liquidating other property for which you have only partial exemptions.

So if we can exempt $43,000, then that is what the check amount would be correct?

I have a meeting with another attorney next week! We are drowning over here! I suppose we could get a modification and try to sell the house but there would likely be liens placed on it before then. I really think bk is the only way out for us. And if it means the trustee takes the proceeds from the lawsuit and my inheritance and all the unprotected equity in the house so that we can start over, that's fine too.

If anyone has any advice on how to avoid bankruptcy, I would love to hear it. My husband and I are separated right now, the stress has really hurt our marriage.

[justbroke]

Thank you once again for your very comprehensive reply Justbroke. I'm not sure I understand why a modification would be better if I'm trying to just get rid of the house. Do you mind explaining a little more?

If you're still tring to file bankruptcy and want to file a Chapter 7 then that may not work. If you're going to just sell and payoff all your debt without the bankruptcy, then ignore my comment. The bottom line, of my comment, was that if you intend to file bankruptcy regardless of the sale of the house, you could be pigeonholed into a Chapter 13.

So if we can exempt $43,000, then that is what the check amount would be correct?

It depends. The Trustee sells at fire-sale prices. If the home doesn't yield what's expected, the amount could be even less than the exemption.

I have a meeting with another attorney next week! We are drowning over here! I suppose we could get a modification and try to sell the house but there would likely be liens placed on it before then. I really think bk is the only way out for us. And if it means the trustee takes the proceeds from the lawsuit and my inheritance and all the unprotected equity in the house so that we can start over, that's fine too.

This is a good start. You have separated yourself from "things" and want a fresh start. I would consult with at least 3-5 attorneys to get a good feel for each attorney's experience and their proposed solution(s).

[womanonfire]

If you're still tring to file bankruptcy and want to file a Chapter 7 then that may not work. If you're going to just sell and payoff all your debt without the bankruptcy, then ignore my comment. The bottom line, of my comment, was that if you intend to file bankruptcy regardless of the sale of the house, you could be pigeonholed into a Chapter 13.


It depends. The Trustee sells at fire-sale prices. If the home doesn't yield what's expected, the amount could be even less than the exemption.

This is a good start. You have separated yourself from "things" and want a fresh start. I would consult with at least 3-5 attorneys to get a good feel for each attorney's experience and their proposed solution(s).

Ok I thought that we would have to be guaranteed the exemption amounts, so that just goes to show you how ignorant I am. I did talk to an attorney last year that thought I would be able to keep the house in a Chapter 7 and discharge all tax debt to my husband. But I was only a couple of payments behind.

My rights of recoupment could give me much more equity and it seems that I would want to the Trustee to pursue it. Here is the thing... I could bring the claims against Fannie in court but I can only bring the rights of recoupment in bankruptcy. I've done A LOT of research on suing Fannie and if I sue them and try to hold them vicariously liable for the servicers actions, they will likely plead Merrill as a defense. They can't do that in that in a court of equity.

So confused on what to do but hopefully the attorney next week can shed some light. I have all the case law for them on recoupment and I even have the complaint done but I'm sure it's going to cost a lot anyway.

I would for the Trustee to go after the former servicer and see if he could get more on my claim. The former servicer filed bk, such a freaking mess!

[womanonfire]

One more question... should I get an appraisal? And wouldn't the Trustee get more if he/she sold for for more?

[justbroke]

One more question... should I get an appraisal? And wouldn't the Trustee get more if he/she sold for for more?

The Trustee is compensated on a sliding scale. They do earn more for larger estates, but they earn less money after the first $5,000 (25%) than they do after the next $45,000 (10%) than they do after the next $945,000 (5%) then they do for all amounts about the first $1,000,000 (3%). The highest commission rate is on money recovered from $1 to $50,000.

As for pursing any right other mortgagee rights in the bankruptcy court, I haven't seen much of that. They have certainly tapered off over the last 5 years. I don't know if any Trustee would want to go down that road, but Chapter 7 Trustees, at least in Florida, have surprised me in the past. Chapter 7 Trustees like low-hanging fruit and easy-money. This is how crafty a Chapter 7 Trustee could be. Rather than the lender foreclosing the note, have the Trustee sell free-and-clear while the Trustee carves out a $10,000 "fee" for having produced clean-marketable title for the lender in a much quicker process. But, that's for the more adventurous Chapter 7 Trustee.

(My two judges both like to send mortgage-related cases -- specially foreclosure defenses -- back to State non-bankruptcy court or US District Court.)

[womanonfire]

Ok I found this on a GA lawyers website: "On the other hand, if this same couple’s equity stake in their home was $80,000, they would need to sell it. After the sale, they would be able to hold onto $43,000 and the other $37,000 would be distributed among their creditors."

And that is what I want to know. That's important here and it didn't seem fair that you're allowed the exemptions only if you keep the property in a Chapter 13 but lose it in a 7.

My rights of recoupment against Fannie would hopefully reduce the the amount of debt that I owe to them around $50,000. The house is worth around $200,000, I owe $110,000. I have priority tax debt around $36,000 (once we file again) and the rest unsecured in the amount of $58,000 (mine) and $28,000 my husband.

We make around $68,000 together and in Georgia the means test is $63,850. We do get to deduct taxes from that $68,000 right?

[womanonfire]

The Trustee is compensated on a sliding scale. They do earn more for larger estates, but they earn less money after the first $5,000 (25%) than they do after the next $45,000 (10%) than they do after the next $945,000 (5%) then they do for all amounts about the first $1,000,000 (3%). The highest commission rate is on money recovered from $1 to $50,000.

As for pursing any right other mortgagee rights in the bankruptcy court, I haven't seen much of that. They have certainly tapered off over the last 5 years. I don't know if any Trustee would want to go down that road, but Chapter 7 Trustees, at least in Florida, have surprised me in the past. Chapter 7 Trustees like low-hanging fruit and easy-money. This is how crafty a Chapter 7 Trustee could be. Rather than the lender foreclosing the note, have the Trustee sell free-and-clear while the Trustee carves out a $10,000 "fee" for having produced clean-marketable title for the lender in a much quicker process. But, that's for the more adventurous Chapter 7 Trustee.

(My two judges both like to send mortgage-related cases -- specially foreclosure defenses -- back to State non-bankruptcy court or US District Court.)

My case is not a foreclosure case. It is a fraud case (former servicer with possibly the guidance of Fannie Mae) change the value of my home and hid that they did that for a a couple of years in order to collect PMI for longer. So we have fraud and HPA act violations for which Fannie can be held vicariously liable, former servicer violated RESPA around 20 times and I have emotional distress damages from that and statutory damages. Misapplied payments so TILA and breach of contract, fraudulent and negligent misrepresentations to name a few. This is why they have not even attempted foreclosure, they know they have defenses.

Here is case in GA on recoupment. https://www.courtlistener.com/recap/...532571.1.0.pdf.

One last question... If one spouse files but they owe joint tax debt, can the one spouse propose to pay all the tax debt in her case? It seems to me if I filed alone, I could possibly get rid of all my debt without having my inheritance touched *if* I can reduce the principle balance on the house by recoupment and setoff.

Then I could divorce and he could file to get rid of his debt if he so chose to.

[justbroke]

Ok I found this on a GA lawyers website: "On the other hand, if this same couple’s equity stake in their home was $80,000, they would need to sell it. After the sale, they would be able to hold onto $43,000 and the other $37,000 would be distributed among their creditors."

And that is what I want to know. That's important here and it didn't seem fair that you're allowed the exemptions only if you keep the property in a Chapter 13 but lose it in a 7.

The reason that you get to keep property in a Chapter 13, is because a Chapter 13 is specifically designed for that. Chapter 13 is a reorganization which just holds creditors at bay. They receive "as much as they would have had the debtor filed a Chapter 7 liquidation" (which is also known as the Chapter 7 liquidation test). In other words, you would need to propose a Chapter 13 whereby the unsecured creditors are paid $37,000 (the amount that they "would" have received under a Chapter 7). So the creditors actually stil get paid in a Chapter 13, just they get paid over the life of the Chapter 13.

That is specifically why Chapter 13s are used; to save property and protect against liquidation.

We make around $68,000 together and in Georgia the means test is $63,850. We do get to deduct taxes from that $68,000 right?

Not when calculating your "current monthly income" (CMI) for the purpose of the Means Test. (Try the free means test calculator at Legal Consumer's website.) CMI is calculated as your last 6 month's income multiplied by 2 and divided by 12. If you made $5,000 in month one, then $5,000 over the next 5 months, but you earned a bonus in that lookback of $5,000, then your 6-month lookback is $35,000. Multiplied by 2 (35 x 2) you get $70,000. Then divide by 12 and you get $5833.33 per month which would be the CMI used for the Means Test. That would put a 2-person family in Georgia, over the median.

But being over-the-median doesn't mean that you can't file a Chapter 7 and it doesn't mean that you should NOT file a Chapter 13. Remember, a Chapter 13 is strategic. It is used to specifically protect and preserve property.

[justbroke]

Here is case in GA on recoupment. https://www.courtlistener.com/recap/...532571.1.0.pdf.

Do you know the outcome of that case? It was a modification under HAMP which forgave portions of the loan under the then Federal toxic loan program. Do you know how the plaintiff's attorney was paid? They used the "escrowed" loan payments, which would have gone to the creditor but they held in escrow, to pay their attorney.

Plaintiffs, and Defendants JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., as Trustee, have agreed to a loan modification whereby Placido Salazar’s mortgage loan is modified to include a New Principal Balance of $449,125.97, conditionally reduces the New Principal Balance by $213,375.97 over three years provided Placido Salazar timely makes his new regular monthly mortgage payments, reduces the interest rate from 7.11% to 5% per annum, immediately defers interest on $237,875.97 of the New Principal Balance, lowers monthly principal and interest payments to $1,018.64 from $2,132.54 interest only, establishes a new monthly escrow payment for property taxes and hazard insurance of $365.21 (which sum includes the cure of an escrow shortage of $3,130.40 over 5 years), and creates a balloon payment of $157,096.49 due at maturity on December 1, 2036. The balloon payment can be avoided by making an additional monthly principal payment of $233.37. (b) Plaintiffs established an escrow account with their attorney, Robert J. Haeger, under their confirmed Chapter 13 Plan (Docs. 57-58) into which they paid their regular monthly mortgage payment while this litigation was pending, which has a balance of $58,858.60, and which will be devoted to paying Plaintiffs’ attorney’s fees and costs. Mr. Haeger will be filing an application with the Court for approval of his fees and costs.

One last question... If one spouse files but they owe joint tax debt, can the one spouse propose to pay all the tax debt in her case? It seems to me if I filed alone, I could possibly get rid of all my debt without having my inheritance touched *if* I can reduce the principle balance on the house by recoupment and setoff.

There are special rules on taxes and your non-filing spouse may not be protected by the co-debtor stay in a Chapter 13. In other words, the IRS may take collection actions against the non-filing joint tax filer for joint tax debt. I haven't had this specific issue, but I would think that since you were jointly liable, you should be able to propose paying the entire tax debt in the Chapter 13. Now the IRS may not pursue the non-filing spouse during a Chapter 13 in which the filing spouse proposes to pay all the debt (since the IRS would be getting paid). That's something for the IRS to figure out.

But, and here's why Chapter 13s can get complex, since the filing spouse would be paying the joint tax debt, the non-filing spouse's income cannot be reduced by the amounts being paid. Background... in a Chapter 13, the non-filing spouse's income is still used in the calculation of the disposable monthly income (DMI). The filing spouse can then reduce the non-filing spouse's income by using the so-called marital adjustment. Since the filing spouse is paying the taxes, the non-filing spouse's income cannot be reduced to cover those payments. This may seem insignificant, but could be if you were trying to reduce the impact of the non-filing spouse's income on DMI.

Then I could divorce and he could file to get rid of his debt if he so chose to.

Bankruptcy and divorce do not make good bedfellows. If you're going to strategize about divorce and bankruptcy, it's best to do planning whereby you strategically do both so that neither spouse is left holding the bag. That's why you would consider filing jointly but doing so after the settlement agreement in the marriage. (A marital settlement agreement is binding in the bankruptcy.)

[shipo]

But being over-the-median doesn't mean that you can't file a Chapter 7 and it doesn't mean that you should NOT file a Chapter 13. Remember, a Chapter 13 is strategic. It is used to specifically protect and preserve property.

Interesting comment. By the time I threw in the towel and started contacting BK attorneys the house had already been sold, as had been most of my other assets. All I had remaining was an old Honda Accord, some clothing and furniture, and the smile on my face. Even still, I was told Chapter 7 was not even remotely possible because of being over the median; hence my Chapter 13 filing.

[womanonfire]

In my case, because of the defense of recoupment and set off, I can potentially reduce the debt owed on my home and sell it through the bk. There are other issues with the assignment which in Georgia is difficult to challenge BUT I have cases that say you CAN challenge it in BK if you were injured. Well the assignment from old bk servicer to new one in this case, injured me. I lost my right to sue as the old servicer found their way around selling in chapter 11 without liabilities. So there is that. There is also the fact that I can almost guarantee the note was lost as the loan was an old countrywide loan. They were notorious for not transferring the note. If I can get the trustee licking her lips (just think of the potential case law created in this unique case, why you'll be famous) then I think I can get done what I want done here. Here is another interesting case. Only a Trustee can challenge this in GA but I plan to share the case with him or her: http://www.bowinlaw.com/Melbourne_Ba...Florida_F.aspx

[justbroke]

I filed a Chapter 7 (non-consumer) and I was 3X the median income. It just depends on your expenses, really. Even with a non-consumer, I still had negative DMI. For over-the-median filers the expense of a home, plus 2 cars, and high property taxes, insurance, and health insurance can actually get that Chapter 7 discharge. Without *all* those types of expenses, it is nearly impossible to file a Chapter 7 being over-the-median income (unless it's a non-consumer filing).

[womanonfire]

Do you know the outcome of that case? It was a modification under HAMP which forgave portions of the loan under the then Federal toxic loan program. Do you know how the plaintiff's attorney was paid? They used the "escrowed" loan payments, which would have gone to the creditor but they held in escrow, to pay their attorney.

Settlement. https://www.courtlistener.com/docket...services-corp/

There are special rules on taxes and your non-filing spouse may not be protected by the co-debtor stay in a Chapter 13. In other words, the IRS may take collection actions against the non-filing joint tax filer for joint tax debt. I haven't had this specific issue, but I would think that since you were jointly liable, you should be able to propose paying the entire tax debt in the Chapter 13. Now the IRS may not pursue the non-filing spouse during a Chapter 13 in which the filing spouse proposes to pay all the debt (since the IRS would be getting paid). That's something for the IRS to figure out.

We're making payments every month.

But, and here's why Chapter 13s can get complex, since the filing spouse would be paying the joint tax debt, the non-filing spouse's income cannot be reduced by the amounts being paid. Background... in a Chapter 13, the non-filing spouse's income is still used in the calculation of the disposable monthly income (DMI). The filing spouse can then reduce the non-filing spouse's income by using the so-called marital adjustment. Since the filing spouse is paying the taxes, the non-filing spouse's income cannot be reduced to cover those payments. This may seem insignificant, but could be if you were trying to reduce the impact of the non-filing spouse's income on DMI.

Bankruptcy and divorce do not make good bedfellows. If you're going to strategize about divorce and bankruptcy, it's best to do planning whereby you strategically do both so that neither spouse is left holding the bag. That's why you would consider filing jointly but doing so after the settlement agreement in the marriage. (A marital settlement agreement is binding in the bankruptcy.)

I think we've had a misunderstanding. I do not want to file a chapter 13, I want to file a chapter 7, get rid of the house and walk away with my $43,000 in equity in the form of a check from the estate. That's what an attorney in GA said will happen via his website. Here is the https://www.kellycanhelp.com/blog/ge...cy-exemptions/ and the quote "On the other hand, if this same couple’s equity stake in their home was $80,000, they would need to sell it. After the sale, they would be able to hold onto $43,000 and the other $37,000 would be distributed among their creditors."

We are not 100% about the divorce yet. Could be the crushing debt is crushing our romance so we're going to file first and see what happens. But we will be sure to talk to the attorneys about it to.