Currently in 13 – Should I dismiss or convert?

[outaways]

In December 2009 I was 14 months behind on my mortgage payment (this was due to being in and out of court and appeals because the lender took illegal possession and ownership of the property). Finally in October 2009 I won the court battle but lost the war because lender started foreclosure proceedings and sale was to occur December 7th. On December 4th I filed Chapter 13 to stop the sale, pay the arrearage through the Trustee, keep the property, and pay unsecured creditors about 10%.

For 26 months I have paid the Trustee and the mortgage on time every month but here’s the problem. In 2011 my income dropped 3% and in 2012 has dropped another 3%. Expenses have basically stayed the same and I’ve cut back as far as I can but can’t make both payments as promised.

I was going to file a motion to modify the plan based on the reduced income but when I looked at the Trustee’s web site for the form to modify it asks for a current Chapter 7 means test. I have paid the mortgage for the last 26 months, the arrearage has gone down 53%, and the county reassessed property values and raised the value 35% (I know this is not what it would sell for but tax assessment is what the Trustee used for the 13 filing).

Anyway this gives me enough equity in the Chapter 7 means test to liquidate, pay the lender off and unsecured creditors 100% and leave me without the property, which I have struggled to keep. If I move to dismiss the Chapter 13 the lender will demand the remaining arrearage (we have bad blood between us) and I don’t have that much cash. If I convert to Chapter 7 I walk away free and clear but no property. I have a hearing scheduled June 7th to dismiss or convert.

I am not paying the April mortgage or trustee payment until I can decide what to do. If I go with converting to 7 and the trustee feels there is enough equity to sell the property, how long would I have before I have to move? I want to stay as long as possible

[btbeme]

What is the house truly worth, and what do you owe? It isn't the tax assessment value, I can assure you. Consider that the sale would most likely not be for the market average; rather, it would probably be for 10-15% below market. Add in sales costs of about 8%, and that will get you a ballpark for the Trustee's sale value of the home.

Generally, a Trustee sale on the house would take a couple months at least. If the Trustee were able to sell the house and pay off all creditors you would get the difference. If you have only a couple thousand in equity at best, the Trustee might think twice about seizing and selling. So, the loan amounts and the value of the property are critical info before we can help you think this through.

Now, let me be brutally honest... If a 3% decline in income puts you into the tank as far as being able to afford the house, it is my opinion that you cannot afford it anyway. A Ch 7 would give you relief and allow you to start living again in a place you can easily afford and also pay your savings account each month. But that is just my opinion for what it is worth.

[btbeme]

Let me put this another way... Paying a Ch 13 for 26 months to keep a home that you are within a 3% income decline to not be able to afford, especially if the taxes increase and your income does not, then...well...

I'd say the 13 isn't really giving you a fresh start, is it?

[TheBajan]

Until you have decided for certain what you are going to do, I strongly suggest you continue to pay the Trustee. If you miss a payment, YOUR options can completely disappear. You really need to get a fair market analysis to base your information on. I have to agree with btbeme that if a 3% or even 6% drop in your income is enough to mess you up this much, you probably can't afford the house anyway.

Very best wishes to you.... please give us more information as I'm sure there are those here who could better answer your questions if we have more to go on.

The Bajan

[LadyInTheRed]

I was going to file a motion to modify the plan based on the reduced income but when I looked at the Trustee’s web site for the form to modify it asks for a current Chapter 7 means test. I have paid the mortgage for the last 26 months, the arrearage has gone down 53%, and the county reassessed property values and raised the value 35% (I know this is not what it would sell for but tax assessment is what the Trustee used for the 13 filing).

Anyway this gives me enough equity in the Chapter 7 means test to liquidate, pay the lender off and unsecured creditors 100% and leave me without the property, which I have struggled to keep.

The Chap 7 means test doesn't ask about the value of the property. It is all about income and expenses. I believe the liquidation test for feasibility of the modified plan will be based on your equity on the day you filed your 13 (but I'm not certain).

Regardless of that, it does seem that conversion to a 7 may be a good idea if you can't really afford the house. You don't get a discharge of the mortgage in a Chap 13. So, if you complete the 13 and then fall behind later, you could be liable for a deficiency if you are not in an anti-deficiency state.

Have you discussed your options with your attorney? The first thing you should do when having problems in a 13 is to call your attorney.