Filing Chapter 7 & Means Test - Do you have to be current on your mortgage?

[jesseg]

Hi All,

I filed Ch 7 and was discharged in Feb 2011. Husband did not file at that time. Stayed current on mtg, got HAMP modification, now we are a month behind on the mortgage. Now, my husband is planning on filing chapter 7. However, we will not pass the means test without including our monthly mortgage payment. After researching online, I found that you have to be current on your mortgage in order to file for Ch. 7. Is this correct? We are just trying to figure out what our next move is. Can you not include the mortgage payment on the means test if you are behind? I'm confused.

Thanks.

[ld2366eh]

We just filed our Chapter 7 last week. We too, are behind on our mortgage payment (8 months). We plan on keeping the home contingent on getting a successful loan modification (which our lawyer hasn't tried to do yet). Our attorney put both the mortgage payment and arrearages on the means test. Hope this helps.

[justbroke]

You can include the mortgage payment because you are still obligated to pay. As far as strategies on listing "Stay and Pay" rather than surrender or reaffirm is specific to your District and Trustees. Your attorney may have listed you as "Stay and Pay" even though you are behind. I was able to do a modification when I converted from Chapter 13 to Chapter 7, before my Chapter 7 discharged. In fact, I received an immediate modification without needing to make any "trial" payments!

It's a myth that you need to be current on property to file bankruptcy (a Chapter 7). The real fact is that if you file when you are not current, the creditor is more likely to file a Motion for Relief From Stay (RFS) granting them permission to proceed with foreclosure or repossession. So, if you want to keep property when you are in arrears with the creditor, it is not a good idea to file a Chapter 7 given that situation. If you really want to keep property, are in arrears, and need to file bankruptcy, it is probably better to file Chapter 13 where you can force the creditor to abide by a Plan of Reorganization allowing you to cure the default by paying the arrears over time. Of course, deciding on a Chapter 13 takes a lot more than just wanting to cure a default and pay arrears. You must also consider if it is "worth" saving the property (analyze whether an underwater property is really worth it in the long run).

So, bottom line. If you file Chapter 7 while in arrears on your mortgage, you can hope for the best, but you really need to plan for the worse. The worse may be foreclosure, but that foreclosure could take many many months!

[jesseg]

Thank you both for your replies - I was concerned about #1 being behind on the mortgage when filing and #2 whether or not we can include it as part of the means test. Seems like neither is an issue. Thanks again.

[HHM]

The issue with the Means Test and including a mortgage payment that you are not presently paying, is good faith.

Yes, in chapter 7, it is okay to put the mortgage payment on the means test so long as you have some honest basis for telling the trustee and court that you "want to keep the house." Your "intent" is to stay and pay...whether the bank lets you is a different matter. Most trustees won't question the issue unless there is something obviously awry where it would be totally unreasonable for anyone to believe that your intent is to keep the house (I am not even sure what sort of facts those would need to be, e.g. the house burnt down and the insurance company refused coverage). In chapter 13, it is a different story. Since chapter 13 can save a house from foreclosure, it is stretch to put the mortgage payment on the means test but then not provide for curing the mortgage arrears in the plan.

JB is correct, it is not required that you be current on your mortgage to file chapter 7...but understand the consequences, you will probably lose the house. Chapter 7 has no mechanism to save the house from foreclosure. So whether you keep the house is largely up to the lender.

[jesseg]

Thanks. Does filing bk speed up the foreclosure process? We plan on staying and paying, but if circumstances change in the future and we can no longer pay, does the bank move faster? We have BoA, reside in NJ.

[justbroke]

I am proof that filing BK does not speed anything up! The foreclosure will happen on the creditors terms. In other words, they will process it (probably) no differently than any other foreclosure. We have people on this board that have waited years (yes years) for a foreclosure post "surrendering" the home in bankruptcy. One of my investment homes was surrendered and it took almost 18 months from filing until the home was out of my name.