Chapter 7 and my house

[Daedalus81]

I can't find specific enough wording which clarifies my situation on any website.

I am buried so deep in medical debt that it would be unlikely that I could make a payment under Chapter 13, so I become Chapter 7, right? (I qualify for 13 under the means test currently). If I wait a couple more months I will fall under Chapter 7 regardless.

So my true dilemma is that I have a mortgage and past due property taxes. I am NOT in foreclosure, but I am behind by 60-90 days. I am capable of making regular payments and catching up over time, but I can NOT catch up before I file (but I will pay up the taxes).

Do I lose my house if I don't catch up before the bankruptcy is complete? Can I complete the bankruptcy with my mortgage payments slightly behind and catch up a little later?

[drowning123]

Hi Daedalus. Welcome to the forum. I think just about everyone here who decided to keep their house without reaffirming DID NOT catch up before or immediately after bankruptcy. They waited for a couple of years, depending on your state's and bank's foreclosure timelines, then they talked to the bank about a modification, which is what I did. I got my payment down by $700. The thing to worry about is the property tax. I know from my experience that my town wanted to foreclose on my house even without the bank's involvement. I sent them a copy of my chapter 7 discharge and let them know that the bank is the one who is now paying the property taxes. I never heard from them again. I am currently on my second modification payment in October. AGAIN, THIS ALL DEPENDS ON YOUR STATE'S AND BANK'S FORECLOSURE TIMELINES.

[Daedalus81]

That sounds like good news. I'm already trying to process a loan mod and we'll be paying the taxes soon. We intend to pay up less than 6 months after our foreclosure, so I think I should be well within any foreclosure time frame if something goes wrong.

[LadyInTheRed]

I am buried so deep in medical debt that it would be unlikely that I could make a payment under Chapter 13, so I become Chapter 7, right?

Wrong. The amount of debt does not determine whether you are eligible to file a Chap 7. The Chap 7 means test does not include debt that will be discharged. If your income minus allowed living expenses equals enough to pay something to unsecured creditors over 36-60 months, you don't qualify for a 7.

As for your mortgage, if you file a 7 while you are delinquent, you do risk that the bank will foreclose. If your mortgage is underwater, the risk of foreclosure is less. Many people with underwater mortgages go months and even years before the bank forecloses, or they modify or settle before the foreclosure happens. If you have equity in the home, you take a much bigger risk.

[Daedalus81]

Right - I misspoke. The means test says we fall under 13, but with the living expenses and whatnot I wind up being able to pay barely anything under 13, so we get bumped to 7.

[LadyInTheRed]

The means test says we fall under 13, but with the living expenses and whatnot I wind up being able to pay barely anything under 13, so we get bumped to 7.

It doesn't work that way. Your inability to fund a Chap 13 doesn't make you automatically eligible for a 7. Either you have to show you can fund a Chap 13 or you have pass the Chap 7 means test AND get past any claim that based on a totality of circumstnaces your Chap 7 filing is an "abuse" (e.g., even though you pass the means test, your schedule I and J shows you can fund a Chap 13). There are a few people who get stuck in the middle. In your case, it sounds like you are stuck in the middle because of a decrease in income (or maybe you received a bonus or other one-time payment). So you need to either figure out a way to fund a Chap 13 or wait to file a Chap 7.

[Daedalus81]

Ah - I appreciate the clarification. I'll go review my numbers and sort it out. Thanks!

[LadyInTheRed]

Ah - I appreciate the clarification. I'll go review my numbers and sort it out. Thanks!

Have you consulted with a BK attorney? If not, you should. Most BK attorneys provide free consultations.

[Daedalus81]

I stumbled across some more info and I am just getting confused.

Based on a website specific to Maine bankruptcies:

"You may keep certain secured debts such as your car or your furniture or house by reaffirming those debts. To do so, you must sign a voluntary "Reaffirmation Agreement"."...

...". In order to reaffirm the debt, you must also bring it current. In other words, if you are three or four months behind, then you must pay the back payments which are due in order to reaffirm it."

So, I need to pay up all my past due mortgage to re-affirm and keep the house under chapter 7? Otherwise it sounds like the house is included in the bankruptcy without the reaffirmation. I also read the thread about not-reaffirming mortgages.

drowning123 - did you reaffirm? were you underwater on the mortgage?

[Daedalus81]

Have you consulted with a BK attorney? If not, you should. Most BK attorneys provide free consultations.

I have, but there is only one in the area and he has been unhelpful. The next closest is an hour away - I am stuck at work without time away for a few weeks so I can't consult with someone else yet.

[Daedalus81]

Ok I think I answered my own question. The information is so scattered and its so easy to get myself confused.

"In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt."...

..."Bankruptcy does not make these security interests go away. If you don't make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case. There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. "

[drowning123]

No, I did not reaffirm. I'm just paying as I go. I can walk away at any point, and not be liable. Then the house would go into foreclosure. I can also stay and pay off the house over the next thirty years, and it would be mine to keep. Reaffirmation is iffy because of the liability issue. What if, heaven forbid, you reaffirm, then 5 years down the road, you can't make the payments? Now you're liable and you can't file bankruptcy again since it's not been 7 years. Some people like to reaffirm because their payments get reported to the credit bureaus. Payments without reaffirmation do not get reported to credit bureaus.

[LadyInTheRed]

Some people like to reaffirm because their payments get reported to the credit bureaus.

I my opinion, those people are fools. There are other ways to rebuild your credit than putting yourself on the hook for a mortgage would otherwise be discharged.