ch 7 question in PA

[chrissy92972]

We filed for chapter 7 about two weeks ago with an attorney. We want to keep our house and our car lease. We received paperwork from 1st mortgage about reaffirming and from Honda. What are the advantages and disadvantages to signing this paperwork. I still have concerns about being able to afford the house 1st and 2nd mortgage once the bk7 is done. we are getting rid of credit card and medical bills, but if something goes wrong in the house we have no savings or no way to pay. Also the 2nd mortgage is a balloon payment several years from now, currently we pay interest only. Our house appraised at 130,000 and we owe about 140000 if I remember correclty without digging out the paperwork. Thanks!

chrissy

[debee]

Hi Chrissy, this link will take you to a discussion thread on the topic of reaffirming. There are arguments in the thread for both sides that are well thought out and will help you make your own decision.

http://www.bkforum.com/showthread.ph...-very-bad-idea.

[tcreegan]

Hi chrissy,

Your house deal is right out of the show "Lets Make A Bad Deal!"......

Seriously, you answered your own question:

but if something goes wrong in the house we have no savings or no way to pay.

Also the 2nd mortgage is a balloon payment several years from now, currently we pay interest only

This house is an anchor around your financial neck, cut the rope and float free....

Tom in Colo

[chrissy92972]

I know Tom you are exactly right. Problem is we have 4 kids and no where to goto rent, the housing market aroud here is awful for rentals and movingout of this area is just not an option at this time. Our attorney told us we have to reaffirm when we first met with him because we did not have a rental agreement and then we would have no expenses if we had no house. I am so confused and our 341 is in 5 weeks. UGH

[debee]

That doesn't sound right. Are you sure your lawyer wants you to sign the reaffirmation agreement? Are you sure he wasn't telling you to indicate on your "Statement of Intentions" that you intend to reaffirm, but then do nothing afterward?

[chrissy92972]

just read the really long thread about rea firming or not. so if we do not sign the papers to reaffirm our first mortgage but continue to pay on time and keep the insurance current, which we are doing now then Chase doesn't come after us right? But what about th e 2nd mortgage from bank of america?

[debee]

BofA could initiate foreclosure proceedings but the 1st lien-holder has first dibs on proceeds. So there would have to be something there for them to make it worth their while.

Is the value of the house greater than the loan on the 1st? Because if it isn't, BofA doesn't have any motivation to foreclose.

If the 2nd wasn't a purchase money loan, they would have had the ability to pursue you for a deficiency balance but once you bk they will lose that.

edit: but their lien will remain and when the house appreciates in value they can foreclose then.

[debee]

Have you looked into a chapter 13? Because if you go that route you might be able to strip the 2nd lien off the house.

[chrissy92972]

the house was appraised at 130,000 we owe about 90,000 on the 1st and 48,000 on 2nd. thank you

[tcreegan]

Hi again chrissy,

Looks bad: 130,000 minus 90,000 = 40,000 equity 2nd is for 48,000

If you are going to keep the house, you need to start negotiations with BoA to modify the loan so you are not interest-only but with a payment you can afford, and to remove the balloon payment. First, and this might be no easy task...you need to find the right person at BoA who has the authority to actually change terms. Do NOT sign any reaffirmation papers, discharge and a few missed payments might bring BoA to the table.

To be honest, it is not looking good. The best scenario for BoA is to keep collecting interest-only payments and then foreclose when the balloon payments hits. One factor in your favor is rock-bottom interest rates that are expected to continue for several years, financing you at 4-5% might be attractive. Another factor is the housing market in your neighborhood, if it is not showing signs of recovery and has a glut of homes for sale, takes a good bite out of what BoA can recover.

Another problem is going to be 'formula' decisions at BoA, big nationals often give depts formulas to use instead of giving them leeway to make decisions on their own. Back to finding the right person...

Good luck w/ this, even though you plan to stay, have a back-up plan if it doesn't work out...

Tom in Colo