Potentially complicated situation in Oregon

[nosfiratu]

Hello,

Many thanks in advance for taking the time to read my post and offer any insights you have. It is very much appreciated!

My wife (call her Rose) and I divorced (very) amicably in January of 2008. She and I co-own a home in Oregon where she has been living with our son. Meanwhile, I have spent most of the last year in California, where I help with expenses when I stay with my friend/roommate (call him John).

Rose's and my divorce agreement calls for me to pay support sufficient to cover certain of Rose's expenses but there is no court-ordered fixed amount. The target amount has been $3500 per month.

Quick side note: Rose is NOT filing for BK.

My expenses increased because I am no longer staying in the home the majority of the time and, over the last six months, my income has plummeted by at least 60% thanks to this economy. To make matters even more interesting, Rose recently got laid off from her teaching position and will be moving to Santa Rosa, CA to start her new job over the summer.

I have about $31,000 in unsecured credit card/personal loan debt. My income fell so far that we could no longer make mortgage payments and the house is in foreclosure with a scheduled sale date of August 6th.

The original plan was to get a loan modification to allow Rose to stay in the house and for me to file for Chapter 7 (I pass the means test), which would let us keep the home and lower total outlays to where I can afford them given my current situation.

Rose's recent decision to move out has thrown a wrench into the works. Rose and I very much want to save the home and at this point can only do so by renting it out (assuming I decide to remain in California, which is my long-term goal).

The mortgage balance (we have no second) is $363,000 and the property value seems to be anywhere from $355,000 to $370,000 depending on Zillow's mood. Modified mortgage payment would be about $2,000 and I can rent the house for anywhere from $1300 to $1500.

The loan mod guy I am working with has suggested that I get the loan modified and then file for bankruptcy. Yes, I'd have to count half the rental income and yes I could also count half of the mortgage expense.

Two Oregon attorneys have told me the following:

- The bankruptcy trustee would force me to get rid of the house (even though it's only half mine) because I have a high payment and zero equity. This goes against everything I have read in books and online where the trustee isn't interested in valueless assets... and where secured debt takes priority over unsecured debt.

- My friend/roommate's TOTAL income would count as part of my means test even though I pay John for use of the apartment and our finances are completely separate.

- I may have a much easier time of things by filing in California because trustees down there are used to seeing much higher mortgage payments and houses that are seriously underwater and may not press the house issue nearly as much.

My questions are: Are they correct? If so, can you see any way around this? I do not have the regular income needed for a Chapter 13 plan. I have put too much time, blood, sweat and $ into the home to simply want to surrender it.

Alternatively... what if I were to NOT remain in San Francisco once Rose moves out but were to come back to the house and physically occupy it until the bankruptcy is concluded? Would that make all the difference?

My long term goal is to be living in San Francisco with Rose's and my house rented out to tenants. I want to do this legally and totally on the level. I am willing to do just about whatever I need to do to make that happen--again, legally.

I don't have a liar loan. I have done all I can to pay my bills all of my adult life and the couple of old 30-day lates on my credit report were going to be gone this year, leaving me perfectly clean. Oh well...

Any help anyone can provide in walking me through how to deleverage without losing everything would be hugely appreciated!

[Frshstart09]

[I]- My friend/roommate's TOTAL income would count as part of my means test even though I pay John for use of the apartment and our finances are completely separate.

You have a lot here, but i think I can help with this part. Your current mortgage will be used in your means testing, along with max allowable allowances per IRS standards. On your schedule J, you will place actual expenses, or expenses forward after your bankruptcy. If this person is your roomate and you have separate expenses, it is possible to only claim his contribution to shared expenses. I have a domestic partner and included all of her income because we have true shared expenses and I was claiming a 2 person household. However, my attorney gave me the option of claiming only her partial contribution of household expense. But, if i had done so, I would not be allowed 2 person household expense, just the 1. Her income was low enough that it benefited me more to have two income household. Hope that helps a bit.

[justbroke]

The bankruptcy trustee would force me to get rid of the house (even though it's only half mine) because I have a high payment and zero equity. This goes against everything I have read in books and online where the trustee isn't interested in valueless assets... and where secured debt takes priority over unsecured debt.

Since you aren't living there, and won't be living there... it's not your residence. Now it's an "investment" property (a/k/a a small rental business). The Trustee will not like this at all. It isn't that it's valueless, it's that you are not living there, and it's just an investment property in their eyes.

- My friend/roommate's TOTAL income would count as part of my means test even though I pay John for use of the apartment and our finances are completely separate.

Not totally true. Their income only counts inasmuch as the offset your costs. So if your rental apartment is $1,00/month and the roommate pays half, you can only claim $500/month for the rental apartment. This, of course, depends on how you treat them. As a household member? Or are you claiming two households (the one Rose has, and the one you have)? That makes it more complex.

I may have a much easier time of things by filing in California because trustees down there are used to seeing much higher mortgage payments and houses that are seriously underwater and may not press the house issue nearly as much.

True, but your home is no longer your residence... it's just an investment property.

My questions are: Are they correct? If so, can you see any way around this? I do not have the regular income needed for a Chapter 13 plan. I have put too much time, blood, sweat and $ into the home to simply want to surrender it.

See above.

Alternatively... what if I were to NOT remain in San Francisco once Rose moves out but were to come back to the house and physically occupy it until the bankruptcy is concluded? Would that make all the difference?

Yes, that would make a difference.

Any help anyone can provide in walking me through how to deleverage without losing everything would be hugely appreciated!

You probably need to get a better "appraisal" on your property than Zillow. I wouldn't trust Zillow to appraise a $50 bike. You should ask a Realtor or two what you could expect to get if you put it on the market. Just tell them that you're thinking of renting it out, or putting it up for sale (the truth)!

I don't understand the attachment to the home. It's not like you have tens or hundreds of thousands of dollars in equity in it. In fact, you probably have no equity. That pile of wood, nails, glass and metal you call home, is just a pile of wood, nails, glass and metal. You probably need to detach yourself from it. Even if it has some sentimental value -- your great great grandmother owned it before and you grew up in it as a child -- don't think of it like that.

Think of the right way to do this. This is a time where you'll be hitting the big "reset" button on your finances. This should be a business decision in all apsects of that term and its meaning.