Chapter 7 and Huge Mortgage

[swanse]

I am looking for some general advice here concerning going through a Chapter 7. I live in Northern Virginia and we purchased a home in 2006. We have a 80 (Countrywide/BOFA) and a 20 (Chase). The first is 450,000. the second is 85,000. In 2007, we took out a fixed Home Equity for 80,000. Unfortuntely, my wife and i have had two additional children for a total of three. Our childcare cost will be arounf 3500 starting next month. The problem is my wife only nets 3500 a month and we are so close to her just staying home and being with our children. All three loans add up to 4200 a month. Then, we have HOA which is 250 and a social membership around 70 a month. These are mandatory expenses.

We are currently in talks with all three banks to do a short sale. The problem is the highest offer we have gotten is 320,000. The second is insisting on 15% payoff and the third wants a promissory note for the full 80K. When I do the means test, we are below the line when we factor in expenses and income.

Will a Chapter 7 allow the first to foreclose and subseuqntly discharge the second and third. We have moved to an apartment and cannot afford to keep the house. Any tips would be helpful.

[BobMango]

A Chapter 7 will discharge your mortgage debt. I discharged about $600k in mortgage debt. There is no guarantee that the lender will foreclose right away so you will be on the hook for HOA and insurance post bankruptcy, until they do foreclose.

Another factor to consider is how you look on the means test without the mortgage expenses. If you have positive disposable income after discharge you could be pushed to a 13. A free consult with an attorney will give you a pretty good idea of where you sit.

[DeadManCrawling]

With those numbers you do risk being forced into a CH13, as Bob says.

I wanted to also add that, if you end up in a 13, the court is unlikely to accept 3500/month as legitimate and necessary childcare expenses. Even if you can prove them and they have been in existence for a long term, they will likely not be acceptable.

Your thoughts on having your wife stay home and manage the kids, at least for a while, if not forever, would help nicely with both aspects, means-test and what might be considered excessive childcare in a CH 13.

You would still need to re-run the means test numbers to see where your income falls, though, and need to pass the DMI number that is accepted in your district. In ours, I think it was $189/month when we filed.

Hate to say it, but the system is really stacked against folks who had some success in life and have fallen a bit. I had a similar case. My mortgage expenses were about 7k per month. Due to medical injury 4 years ago and subsequent loss, our finances got mangled. We, though, were so upside down on EVERYTHING, that even without the 7k per month expenses for the house, we still fell under median and had no DMI. It took about 3 years of letting income fall and reducing expenses carefully to reach a point where we could file CH 7, and our window for doing so amounted to about 6 weeks.

Good luck,

-dmc

[good2free]

My suggestion would be, stay in that house. File CH7 and tell them you are planning on keeping the house. Do not REAFFIRM the debt(Use ride thru option).

Once you get your discharge, do not pay any loans. They will foreclose the house but you are not responsible for any deficiency balance. That is what I am doing right now. You can stay in the same house rent free any where from 4 to 12 months depending upon how fast the first mortgage moves the foreclosure process.

[okiebk09]

go talk to an atty and i suggest talking with more than one to get different opinions for your area on what you can do. sometimes there are small windows of time for bk7 so plan carefully.

[ForumReader]

My suggestion would be, stay in that house. File CH7 and tell them you are planning on keeping the house. Do not REAFFIRM the debt(Use ride thru option).

Once you get your discharge, do not pay any loans. They will foreclose the house but you are not responsible for any deficiency balance. That is what I am doing right now. You can stay in the same house rent free any where from 4 to 12 months depending upon how fast the first mortgage moves the foreclosure process.

That might have been a feasible option for the OP, but the OP stated they have moved to an apartment already. Swanse, have you locked in an apartment lease that you cannot break? Good luck with your BK process.

[iv65536]

Another way to do this might be to move back into the house, do a ride-through, and reject the apartment lease. In the interim, consider paying only the 1st.