Ch 7 vs Ch 13 - Does it all come down to the house?

[boomerkae]

My husband and I have been working on our bankruptcy for a few months with our attorney. When intially weighing our options, we were thinking that Ch 13 was best, as it discharged our home equity loan, and we wanted to stay in our house.

Now, we have a very viable option to move into a house and do not care what happens to the house we are in now (we had some mortgage troubles a year ago, and are currently current). While preparing for the 13, I realize that after the birth of our second child, we are still short $400 a month - who knows how bad it will be with a 13 payment. Our biggest expense is the house.

I'm considering short sales and just letting it foreclose. How would these effect bankruptcy? Would a ch 7 be a better option and allow us to walk away from this home dept? I have a call out to our legal office, but am hoping for some input here.

We are in Marlyand.

[debee]

So long as you don't sign a reaffirmation agreement as part of your chapter 7 bankruptcy filing, you will be able to completely walk away from the house with no subsequent liability. A second benefit is that you will be able to stay in the house, and not pay either of your mortgages and save that money until the lender actually forecloses.

[Chowder]

My husband and I have been working on our bankruptcy for a few months with our attorney. When intially weighing our options, we were thinking that Ch 13 was best, as it discharged our home equity loan, and we wanted to stay in our house.

Now, we have a very viable option to move into a house and do not care what happens to the house we are in now (we had some mortgage troubles a year ago, and are currently current). While preparing for the 13, I realize that after the birth of our second child, we are still short $400 a month - who knows how bad it will be with a 13 payment. Our biggest expense is the house.

I'm considering short sales and just letting it foreclose. How would these effect bankruptcy? Would a ch 7 be a better option and allow us to walk away from this home dept? I have a call out to our legal office, but am hoping for some input here.

We are in Marlyand.

You show me a Chapter 13 filer and I'll show you a poorly planned Chapter 7.

[HHM]

You show me a Chapter 13 filer and I'll show you a poorly planned Chapter 7.

Ain't that the truth

If you have no interest in keeping the house and otherwise would qualify for chapter 7, then file chapter 7. (unless there are other reasons for chapter 13, i.e. priority debts etc). The chapter 7 will wipe out the mortgage debt regardless if you short sell or foreclose.

[boomerkae]

I guess that's my downfall- combined, we make too much money to qualify for the 7. I don't think we are far over the cutoff though. Medical expenses and the econmonic climate (my husband has lost 70% of his income in the last 5 years - but still in the same profession) have us in over our heads, despite our income. We really don't do a ton of extras!

Anyone help refresh me on how the decision could be made between the two?

[frogger]

You show me a Chapter 13 filer and I'll show you a poorly planned Chapter 7.

A lot here will not agree with you on that, however I do. Planning is not something that happens overnight however, and that is the problem that most people face.

We were actually a Chapter 7 asset case, and it worked out well for our family. Knowing what I know now, I could have done even better, but I'm very satisfied.

[tcreegan]

Hi boomerkae,

I'm considering short sales and just letting it foreclose. How would these effect bankruptcy? ....naw....unnecssary complications

Would a ch 7 be a better option and allow us to walk away from this home dept? Yup

An option to consider is to stop paying on both 1st and 2nd until you get the final notice to vacate prior to the foreclosure sale. Use the $$ you save to bankroll you post-BK life. Depending on your state, there is a defined timeline to a foreclosure so it is something you can plan around. Add in a couple months where the process stops for the BK, you might end up with your 1st+2nd payments x 8, 10, maybe more. Just another option for you.....always good to have options!

Welcome to the forum, keep posting, lots of good folks here to help out!

Tom in Colo

[Chowder]

A lot here will not agree with you on that.....

Of course! Folks that are poor planners! Kidding.......

BTW Love your avatar.......

[boomerkae]

I'm considering short sales and just letting it foreclose. How would these effect bankruptcy?

Yep, that's kinda where we are.

An option to consider is to stop paying on both 1st and 2nd until you get the final notice to vacate prior to the foreclosure sale.

That's another train of thought.

Welcome to the forum, keep posting, lots of good folks here to help out!

Thank you!

[researchnerd]

I guess that's my downfall- combined, we make too much money to qualify for the 7. I don't think we are far over the cutoff though. Medical expenses and the econmonic climate (my husband has lost 70% of his income in the last 5 years - but still in the same profession) have us in over our heads, despite our income. We really don't do a ton of extras!

Anyone help refresh me on how the decision could be made between the two?

Please do not assume you don't qualify for Ch7 based only on income. We initially filed Ch13 for the same reason, but then converted to Ch7 after DH lost his unemployment benefits. Our attorney gave it about a 60% chance, we were way over median, but we have high non-dischargeable expenses so we still qualified...and I am incredibly thankful not to be in a Ch13 payment plan for five long years. Have a good sit-down with your attorney and find out what your options are. If you're significantly negative on your monthly expenses, it could work.

[HHM]

Chapter 13 is still a POWERFUL tool for dealing with debt. If you make too much money for 7, you make too much for 7; that doesn't mean you can afford to pay your debt without Chapter 13. There is NO other options that bases your repayment of debt on what you can actually afford to pay. Chapter 13 is the way you can DICTATE to your creditors what you will pay back. So, even if you decide to not keep the house, I wouldn't rule out chapter 13 as an option for dealing with your debt.

[boomerkae]

Chapter 13 is still a POWERFUL tool for dealing with debt. If you make too much money for 7, you make too much for 7; that doesn't mean you can afford to pay your debt without Chapter 13. There is NO other options that bases your repayment of debt on what you can actually afford to pay. Chapter 13 is the way you can DICTATE to your creditors what you will pay back. So, even if you decide to not keep the house, I wouldn't rule out chapter 13 as an option for dealing with your debt.

Oh, we are definitely filing. I'm just trying to figure out how best to leave the house - and not have the debt of the 1st and 2nd mort. Is it possible with either?

[HHM]

The debt will be discharged in both, so no worries there. Any deficiency will become part of your pool of unsecured debt. Most people let the house foreclose, short sales are a pain in the but, most SS's never close and there is no benefit to you.

[Clabbergirl]

You show me a Chapter 13 filer and I'll show you a poorly planned Chapter 7.

I wish this were the case in my situation. I qualify for 7 and was all set to go that route until I read about marital debts and property settlements. I make $36K a year and am in debt, house included, for over $230K. The majority of that is joint debt and my ex can come after me for contempt of the divorce decree. I don't make enough to pay the mortgage, car, and insurance as it is. I cannot imagine what a 13 payment plan will be like. Go 7 if you can!

[boomerkae]

The debt will be discharged in both, so no worries there.

Really?

When we started talks with the lawyer, we wanted to keep the house. We were looking at 13 due to the income thing and to discharge the equity loan. My lawyer made it seem like if we filed 7; we had to pay back the 2nd - but perhaps that was contingent on us keeping the house.

SO, if I'm reading your message right; in either 7 or 13, I can walk away from this house, and not have to deal with the either mortgage. Is that true? That the mortgage company can go to foreclosure - and it would be part of my bankruptcy?

Thanks to everyone for your input.