Mortgage and Car Question

[ace300s]

We filed Chapter 7 and had our 341 hearing this week. We are both in our 60's and going through a lot of mixed emotions. Our plan was to sell our house, get out of debt and enjoy the golden years. The house lost $270,000 in value from its high 5 years ago. It's now $70,000 underwater. BTW, we live in Northern California.

Here's my question....I assume the mortgage and our vehicle loan will be discharged in the bk? We were talking about a loan modification prior to filing bk. Supposedly the lender was going to send our bk attorney a proposal when we filed (nothing yet). I doubt the lender will lower the loan balance and interest rate? I guess we should just wash our hands of the house and say goodbye. Any comments.

As to our car. We owe $8000 on the car and its worth $10,000. It's our only vehicle and we have continued to make payments (voluntary). We are considering keeping the car and paying it off within a year after the bk. Any comments. Good idea, bad idea? What about this reaffirming the loan I've been reading about.

[btbeme]

Welcome to the forums - we are here to help!

First, you can make the choice whether to reaffirm a secured debt like a car loan or a mortgage. You cannot be "made" to do so - it is your choice.

If you choose to NOT reaffirm - as is strongly recommended by most people in most situations - then the secured debts are included in the BK discharge, and you will have no further personal financial responsibility towards those debts. However, if you do not pay those debts (even if the debt is discharged in Ch 7) then the securing agent can claim the item. In this case, if you stop paying on the house, the house will eventually get foreclosed - though you have no concerns about getting sued, taxed, etc on that foreclosure.

On the vehicle, it is sometimes a bit "stickier" in that a car is easy to repossess. Many auto loan companies will strongly suggest that you reaffirm the debt. Some will come right out and tell you that if you do not reaffirm they will take the vehicle - and they do - even if you intend to keep paying them. If the vehicle is worth more than the debt, you can almost count on that happening, especially with certain companies.

Now...neither the car nor the house can be taken from you once you have filed Ch 7 until the automatic stay is lifted. The automatic stay starts the moment you file, and is in place until the BK is discharged OR the company with the secured interest petitions the court to lift the stay and that petition is granted.

If you are underwater on the house and feel you can find a comfortable rental, I'd say that NOT reaffirming the mortgage is in your best interests. After your 341 hearing, you can likely stop payments on the mortgage, bank that money, and stay in the house until foreclosure (which takes anywhere from 3-12 months after discharge). Many people are able to stay longer without payment, as there are many "delaying" tactics you can use to stretch out the time for staying. A discussion of this subject is found by clicking here: http://www.bkforum.com/showthread.ph...-Ch7-Discharge

As for the car, if you are 100% certain that you want to keep it AND are 101% certain you can afford the payment after completion of BK, then you might consider reaffirming that loan. But before you do so, you can contact the loan company and ask them their policy on reaffirmations and repossessions.