Maximize, strategize, follow through?

[BROKEDED]

Okay, my situation in a nutshell. My employer is heavily dependent on the construction industry. My wages have dropped about $27,000 in the past 3 years due to reduced hourly pay AND reduced hours. We created way too much credit card debt and a very unwise refinance that added alot to our 2nd mortgage but everyone was still getting paid with money to spare until quite recently. Then my hours were cut once again along with pay being slightly reduced. My employer has little room to move any more without a forced layoff.

My wife's employer has been cutting their US workforce for the past 2 years by either outsourcing entire departments or making clean sweeps by paygrades to even include managers, regionals, vp's, etcetera. We are each potential jobless statistics.

We owe approximately $255,000 ($150k/$105k) on a house worth maybe $200-225k at absolute most. We could have gotten $270k at the building peak. This is in a neighborhood that started out nice but ending up allowing a builder to throw up cheap (design/material wise) homes. Two of these homes recently short saled for $125k and $154k. We don't see our house doing any better than break-even for several years. Even then we've acquired some pretty crappy neighbors and I don't see the situation improving. I actually see our neighborhood in decline.

NOW, my original thoughts were that Ch 7 would allow us to keep our house without reaffirming but my thoughts have recently changed. I've checked rentals and we can get into a similarly sized house for $1000-1200 per month. We currently pay $1930 including escrow. Discharged credit cards would add another $835 to the pot.

What I would like to do now is maximize our "rent free" time in the home to build savings. An increase in my hours or pay would actually hurt our case for Chap 7 so time is important.

Who can suggest a good STRATEGY to stop paying credit cards and 1st and 2nd mortgages before, during, and after Chap 7 to MAXIMIZE actual cash under our mattress?

[dspii]

Be careful with the cash under the mattress, before the day you file for BK you want as little liquid assets than possible...they become property of your estate and the trustee. After you file, most income is out of the reach of the trustee, such as additional work hours, although a good lawyer can help you best.

Strategizing your BK depends on your recent, income, CC usage, cash advances etc. Talk to a lawyer, they can better help. In my case I had charges and I made payments in the same month I filed. I was truely living on my cc's, and I was current on all my bills until I filed. Look for the 70/90 rule in the forum.

I have read here in the forum that most forclosures are taking 6 months or more, based on your area, others from NC can help more. Based on this, after you file, you could live rent free for at least a couple months and walk away free and clear...providing your BK is discharged.

[StartingOver08]

First, check your allowed exemptions for North Carolina here www.legalconsumer.com

Then, as suggested earlier, make sure you only have the allowed amount of cash before filing. Make sure you have not charged on your cc's in at least 90 days before filing. Put together your paperwork. To ensure a Ch 7 you want to keep making your mortgage payments up to your 341 and then stop paying after the 341. The lender will either move for relief of stay or wait until you are discharged to begin foreclosure proceedings. Most of the time the Notice of Default comes 90 to 120 days from the last payment. Then the foreclosure starts. BUT check with your attorney to get some practical advise on not only the actual proceedure, but what is actually happening now in this foreclosure mess. (The normal timeline for foreclosures is much shorter than the current timeline, get both answers.) Since the lenders are taking so long to foreclose, stay in your house until the final sale (check this with your BK attorney for your area). There will be plenty of time to build up savings in your current home during the foreclosure process.

A large part to a successful BK is figuring out what to do with the cars/vehicles too. I think you are wise to surrender your house. Get that fresh start with as few payments as possible....

Don't walk away too soon. I am in South Fl so I don't know your area, but what I see here is too many people leave too early in the process (like a year too early!). They could be saving those rental funds but they get nervous. Remember, the bank would rather have someone in the house taking care of the property than have a vacant property. I am speaking of regular type every day maintenance like mowing lawns and keeping power on, not big things like roof repairs.

[BROKEDED]

The two credit cards, American Express and Captial One are both within $1000 of their limits. We have been using them for things like car insurance, groceries, fuel, cable, cell phone, etc... but no major purchases. I had planned to use them as usual through the end of this month and then stop payments for at least 3 months before filing. Of course some of what I was paying will actually now have to go toward paying those monthly expenses.

We have 3 cars, two being new '08 daily drivers (10 months old) and one 10 year old garaged keeper in disrepair. Exemptions are $3500 for one vehicle each. Both names are on each car. My wife's is upside down, mine has a little equity, and the garaged is paid off. The exemptions should cover mine and the garaged for now. I may fix the garaged one and sell it post BK for more money. We would reaffirm the 2 daily drivers with BB&T and a Credit Union.

The timing of the house payments are really my only major concern. I could see the 1st mortgage foreclosing if they weren't paid. As forementioned, the 1st is $150k. The "normal" market value is probably $200-220k right now but a foreclosure or short sale would probably not bring more than $175k tops. The 1st would be covered but that only leaves $25k for the 2nd before subtracting their costs. They would probably net no more than $10-15k on a $105k balance so I don't see the 2nd in a rush to foreclose if payments to them were stopped. But who knows?

StartingOver08...so you're saying that I need to stay current on BOTH mortgages until my 341, correct?

I've got some questions about a few different scenarios... (#1) Stay current until the 341, state my intent to not reaffirm or retain and then stop making payments on both. Is is reasonable to expect to stay in the home a minimum of 3 to 6 months from the 341 then? Amount saved = $5800-$11600 based on 3 to 6 months.

Scenario (#2) Stay current through 341, state my intent to not reaffirm but still retain and stay current through the discharge, THEN make partial payments (say 50-75%) to the 1st mortgage until........ Partial payments would be $585-880. Savings would be $1050-1345 from 1st and 2nd during the partial payment months. Would this gain any appreciable time and savings? Could this come back to bite me somehow?

I've read that it takes approximately 2 years to be able to get another mortgage after BK. Does prolonging the foreclosure after BK push that time further out?

As for other property, my exemptions should easily cover everything else.

[StartingOver08]

The only reason I suggested that you make both payments until you have your 341 is so you can use your actual payments in your petition and have a successful Ch 7. If you do not need the payment amount to reduce your DMI to have a successful Ch 7, then you can stop paying at anytime. Some districts will only allow you to use your actual payment if you are actually making the payment, otherwise they want you to use the rental allowance for your area. Other districts will allow you to use the payment if you are making it or not making it. This is an important distinction. Your attorney will know which way your Trustee views this issue.

Option 1 is what I was describing to you in my last post. You may have much longer in your home then 6 free months after your 341. My 341 was NOV 2008 and based on the motion I just got from the foreclosure attorney yesterday I could be here til June 2010 with free rent. (The motion simply asked for more time on a production of documents - no time frame, just more time to find the documents!)

Do not do option 2. It does not buy you extra time. It does not help you at all.

The clock starts running from the time the bank gets your home into its name - so if you delay the foreclosure to save some funds then you will delay the time it takes to get the title turned over to the bank. It's ok. Use that time wisely to build savings.

[BROKEDED]

Thanks for the advice. I'm going to see at least one other attorney next week and will ask about both credit card and home payments. One attorney has already told me to stop making CC payments 3 months before filing which will cover the attorney's fees. I would hope that she would take lack of payments affecting my case into consideration but I will get a second opinion soon.

Do you know if the foreclosure extends the waiting period for new mortgage eligibility?

[BROKEDED]

Can anyone tell me for sure if the foreclosure after Chapter 7 increases the waiting period before you're eligible for a new mortgage?

[StartingOver08]

Can anyone tell me for sure if the foreclosure after Chapter 7 increases the waiting period before you're eligible for a new mortgage?

Yes. The waiting period BEGINS when the property is transferred into the banks name. So if you file any sort of BK, you will delay the foreclosure process which will increase the waiting period.

[BROKEDED]

I'm confused. I'm referring to the bank taking the house AFTER Chapter 7. For instance, if it takes them 9 months to kick me out, is that 9 months tacked on to the 2 years for say FHA eligibility? Or are you saying that transfer takes place at the 341 and the time starts then?

[StartingOver08]

[QUOTE=BROKEDED;349181]I'm confused. I'm referring to the bank taking the house AFTER Chapter 7. For instance, if it takes them 9 months to kick me out, is that 9 months tacked on to the 2 years for say FHA eligibility? Or are you saying that transfer takes place at the 341 and the time starts then?[/QUOTE]

The transfer DOES NOT take place at the 341.

Bankruptcy and Foreclosure are two entirely separate actions. The bank must foreclose even if you have surrendered the house in bankruptcy.

The 341 is the meeting of the creditors. The transfer takes place when the bank finalizes the foreclosure. Which will be many months AFTER your 341 especially since you will be current in your mortgage payment until the 341.

The bank can not foreclose without you defaulting first (stopping payments). Usually the bank/servicer will send the NOD 90 to 120 days after you stop making payments. They then begin the foreclosure process. They must complete the foreclosure process in order to get the property into their name (unless you are able to get the bank to take a Deed in Lieu). Bankruptcy delays the foreclosure process because the bank can not continue it without getting a Relief from Stay.

[nickifan]

//Then, as suggested earlier, make sure you only have the allowed amount of cash before filing. Make sure you have not charged on your cc's in at least 90 days before filing. //

StartingOver...what is that "allowed amount of cash" before filing? Or does it vary among states? I am very confused on this point...how are you supposed to so finely tune your bill-paying that month (and know exactly when the funds will clear the bank) to have the lowest amount in the bank on the day you file? And if there's "too much", is an ATM withdrawal okay, or frowned upon?

Also...I'm confused about the standard advice of not charging on your CC's for least 90 days...what if that's how you are surviving? Is it "accepted" practice that the charges are okay if they are for essentials like the supermarket, gas station, your car and health insurance? Is there a single-purchase dollar amount in that regard that raises questions? And...if you ARE charging on one or two CC's...is it "preferential" if you send only those creditors (with whom you have charged) at least some payment?

Many thanks.

[StartingOver08]

Nickifan, yes there is a different amount in each state. Look up the exemptions for your particular state and make sure you check to see what the limit is for cash (in the bank) and cash on hand. If you have outstanding checks or make an ACH transfer, or debit card use and it has not cleared by the filing date - the Trustee can take the funds over the exempted cash amount.

Most people make sure everything has cleared by not writing checks a few weeks before filing and paying everything with cash or money orders. Coordinate with your attorney the maximum amount you can have in your bank account and 'in hand' on the filing date.

As to the 90 days, BAPCA changes PRESUME abuse if you use your cards within 90 days of filing. It is best to stop charging period. Most people also have to stop paying the cards at that time too because they need the cash they are using for the payments to pay living expenses or pay the attorney.

This is from the NOLO book: If You've Incurred New Debt or Transferred Property Recently
Certain payments and transfers that you make before filing bankruptcy cannot be undone in bankruptcy, and may even jeopardize the bankruptcy itself. Here are the most common issues to watch for:
If you charge more than $550 in luxury goods or services on any one credit card within 90 days of filing for bankruptcy, the court can presume that you made the charges fraudulently -- that is, that you never intended to repay the credit card company. If this happens, the charges would survive your bankruptcy instead of being wiped out with your other debt.
Likewise, if you run up cash advances totaling $825 or more on any one credit card within 70 days of filing for bankruptcy, the cash advances can be considered fraudulent and can survive your bankruptcy.
If you pay more than $600 to a commercial creditor within 90 days of filing for bankruptcy -- or to a relative or business associate within a year of filing for bankruptcy -- the bankruptcy trustee can take the money back ("recapture" it, in bankruptcy lingo) and distribute it to your creditors.
If you've transferred any type of property to others within the past two years, either by giving it away or selling it for less than it was worth, the bankruptcy trustee can take it back and distribute it to your creditors. (unless it fits within a property exemption). The trustee can even challenge your right to a bankruptcy discharge if it can prove that you transferred the property to try to hide if from the bankruptcy court.
By waiting until these various time periods are over, you avoid the risk that these debts might survive -- or even sabotage -- your bankruptcy filing.

http://www.nolo.com/legal-encyclopedia/article-29955.html

Read the link, it has a lot of good information if you are just getting started.