7 or 13 - need opinions please

[nodough]

Thanks to the advice I've read on this forum, my husband and I had a consultation with a third attorney yesterday. This guy was definitely the winner.
He answered questions without rushing us, was very approachable and he answers his phone! He laid out our options for us and now we're trying to figure out the bast way to go.

We easily qualify for a chapter 7. We could file pretty quickly and then we could have all of this behind us in about 90 days. OR we could file a chapter 13 for the sole reason of stripping our second. This of course would take much longer and be more work but might be worth it.

We owe 440K on our first and 65k on our second. At the time we got our second, our house was worth 650k, but now ????. Homes in our area are all over the place depending on whether they are bank owned or not. I've found everything from 350k to 500k. I know we would need to have an appraisal to figure it out but I think our value is close to what we owe on our first.

My gut tells me to do the chapter 7 and get everything over with but this might be a great oppotunity to get rid of our second mortgage. We only pay interest on our second right now but in 7 years that will change to principal and interest which would probably be hard to handle. BUT 7 years is so long from now. Who knows what could happen in 7 years.

My head is spinning and I just don't want to screw this up. Any advice or opinions would be appreciated.

[BnkrptcyLwyr]

First, get the appraisal ... that will tell you whether you're in the ballpark of being able to strip the second mortgage. If you can't strip the second mortgage, that basically decides the issue - do a 7 if you can.

If the appraisal is favorable to stripping the second you may still want to do a Chapter 7 first, and then follow up and do a Chapter 13 later to strip the second. Yes, you can do this - our firm has. This strategy will depend on your disposable income - can you really swing the Chapter 7, and then later show that you have enough income do to a 13?

Or, you can do a Chapter 13 right from the get if your disposable income would not justify a Chapter 7.

But I prefer Chapter 7 if at all possible - because you don't sign the reaffirmation agreements, you can still pay on the house, and then you're free to leave at any time if things take a sharper turn for the worse.

[nodough]

First, get the appraisal ... that will tell you whether you're in the ballpark of being able to strip the second mortgage. If you can't strip the second mortgage, that basically decides the issue - do a 7 if you can.

If the appraisal is favorable to stripping the second you may still want to do a Chapter 7 first, and then follow up and do a Chapter 13 later to strip the second. Yes, you can do this - our firm has. This strategy will depend on your disposable income - can you really swing the Chapter 7, and then later show that you have enough income do to a 13?

Or, you can do a Chapter 13 right from the get if your disposable income would not justify a Chapter 7.

But I prefer Chapter 7 if at all possible - because you don't sign the reaffirmation agreements, you can still pay on the house, and then you're free to leave at any time if things take a sharper turn for the worse.

Thank you so much for the reply. Our lawyer did mention doing a 13 later to strip the second but it sounded like a grey area on the timing. I really don't think home values are going to go up anytime soon but I guess you never know and I could miss out on my chance to get rid of a 65k debt.

Our income is already negative so we don't have any disposable income right now at all. Being self-employed, we might never have any disposable income!

I think I prefer a chapter 7 as well. I don't like the idea of waiting 3 years to be discharged. We want to keep the house for now but our kids are almost grown and I could see walking away in the future. Can you still walk away from the house later if you do a 13?

[albacore44]

or, you can do a Ch-7 do not re-affirm, and after discharge stop paying the 2nd assuming there is no equity to secure it. Most likely they won't forclose, and will sell off the debt, and you can try and settle with a JDB to release the Lien.

I am in your same exact boat trying to decide which way to go, except my 2nd is much larger at $240K and the homes here are still sinking as fast as the Bismark.

[nodough]

I think I like that idea but my second is with the same bank as my first so I don't know if that changes anything. 240K!! that makes my 65K sound small now. California real estate is ridiculous!

[Amy26]

Try Northern VA... 2 years ago I bought a 790 sq ft condo for 250,000. At the time, I had 60,000 of equity in the home. So, I used some of it. Bringing my mortgage to like 270,000 or something. I have a first mortgage of 191,900
and a second with a credit union of 74,000.

Basically, since this economic meltdown my home is now worth maybe 100,000-120,000. The condo development is relatively small and pretty much everyone is bailing on the units. So, within the last year everyone has been foreclosing and short selling them. The unit that is bigger than mine is selling for the 100k-120k range.

So, within a 2 year span I go from equity to over 150k in the hole... like how the hell does that happen? I totally feel your pain. I can gauge and have heard estimates that it will take maybe 15-20 years for my property to come back up to its former value. At one point in 2005-2006 it was worth over
300k. So, by the time that would happen I'd almost have the damn thing paid off ... lol.

With the way prices are right now (and I agree they won't go up any time soon) its almost best to take the bankruptcy hit, ditch the house and then wait a few years and buy a bigger better one for less than you bought the other for.

Its such a great time to buy right now... I kick myself in the butt every time I think about it because I would go out right now and buy one of the condos in my development if I wasn't up to my ears in debt.

[nodough]

Oh I know it's bad everywhere. Are you keeping your condo?
Prices have been overinflated in California for so long that the fall is steep. I could have a waaaay better, bigger house in a better neighborhood for less than I owe on my mortgages now. Makes me sick to my stomach.
My sister recently inherited money and she and her husband are snapping up homes in Arizona to use as rental properties but she's upside down by like 300k on her house here in CA because she bought right before the meltdown.