Help me understand this home sale strategy in bk

[phigment]

I had an initial consult with a bk atty last night and he recommended a CH7 as I expected. There was not much new I learned from our conversation since I have been doing my homework on this site. He said we could discharge all of our $90K of cc debt and decide if we want to keep the house and cars. My initial reaction is to keep the house but he proposed some strategy that I had not heard of and cannot recall all of the mechanics of. I have a call into him to better understand what he outlined but I was hoping some people on here could offer some insight.

Here is what he proposed:
We own a home currently valued by some websites at $432K. I have a $392K 1st mtg and a $144K 2nd. I believe he proposed (and correct me if I am wrong) something to the effect of selling the house at the $432K, net $406K after broker commission, pay off the 1st, pay $14K of the 2nd and discharging the balance of the $130K in the bk. At some point in all of this we would be in foreclosure and living "rent free" for a period of time, up to six months I think. Again, maybe I am confusing parts of two options he outlined so please set me straight.

[jeb]

I may be missing something but IF you are going to Bk, why go through all that? Both loan amounts will be dismissed in BK and you save yourself a LOT of work and problems.

Unless you want some free rent, of course - but it still has to go through the foreclosure process so I don't see much difference either way. - jb

[phigment]

I guess that's part of my question since I am unsure of the mechanics of what he proposed and the advantages and downsides. Unfortuantely I initially dismissed the suggestion since I plan to keep the house but after some thought I want to make sure I understand all my options.

[StartingOver08]

Are you sure you want to keep the house? Sounds like you are upside down by at least $100k and that is using the value from the websites which are notorius for having values higher than actual market value.

How do you plan to recoup the extra $100k in debt?

I am just asking - I ended up surrending two homes in BK because one was nearly $200k upside down and the other was about $65k upside down....

This is something you really need to work out, because coming up with $100k just to give to the bank (not including interest etc) in order to sell years down the road will not be an easy task.

Yes you can do a short sale - but why not consider taking care of all the debt in your BK? Just thinking out loud.

[jeb]

Startingover is asking the same thing I did but in a better way - WHY would you want to keep all that debt to carry for years when you can walk away from it now.

Houses prices are still falling in many parts of the country so replacing the home should not be a problem - at market value, not what your loan is.

After BK, you may not be able to get a loan for a couple of years but you can buy with owner financing and more and more sellers are coming to realize that is the only way they will ever sell. - jb