Is bankruptcy overkill?

[BinGA]

Here is my situation. Wife and I bought a house in Georgia in 2006 for $156,000. It is an 80(AHMSI)/20(Greentree) loan. The 80% loan is about $119,000, and the 20% is about $32,000. We divorced in 2008 and I took over the house and payments. The house is now worth $112,933. Divorce decree states that I must sell or refi. I tried a refi in 2009 but the house is underwater and we couldn't afford the deficiency. I have had it on the market for 6 months as a short sale. So far no offers and hardly any lookers. I have applied for mortgage modifications but the banks are taking their sweet time. I have done the math and I don't think even the modifications will save me from the situation I am in.

I am no longer able to afford the mortgage payments. I'm going ~$320 deeper in debt a month by paying bills with my credit card. The only debts I currently have are the house and one credit card($2500). My credit score is ~720.

I have decided I will stop paying mortgage starting with December's payment. As of right now I have no late payments or bad blemishes on my credit record. I am thinking of filing bankruptcy before I start getting behind on my payments, to avoid further damage, and to avoid the deficiency from the 2nd mortgage.

My question to you all is: Should I declare bankruptcy or should I just let foreclosure happen? Am I using a nuclear bomb when I should be using a hand grenade?

I have spoken to 3 different bankruptcy lawyers so far. I have asked them this question, and they all say I should declare bankruptcy. But of course they would say that. They are bankruptcy lawyers

Thanks!

[DebtEnder]

BK will absolve you of your debt to the bank. However it will not absolve you of the court ordered decree that you hold your ex harmless regarding the house. If you allow the house to be foreclosed on the bank will go after the ex. Ex wife can then come after you for damages she incurred from your failing to take care of the house .And even if they don't go after wife for remaining balance in a sense the fact she would then have a foreclosure/short sale on her record she could STILL decide that is damaging, and it is, and come after you.

I think you really need to work on the short sell and get a seperate loan for the remaining balance to pay the bank off in full. I don't really see a good way out for you in this case.

[BinGA]

BK will absolve you of your debt to the bank. However it will not absolve you of the court ordered decree that you hold your ex harmless regarding the house. If you allow the house to be foreclosed on the bank will go after the ex. Ex wife can then come after you for damages she incurred from your failing to take care of the house .And even if they don't go after wife for remaining balance in a sense the fact she would then have a foreclosure/short sale on her record she could STILL decide that is damaging, and it is, and come after you.

I think you really need to work on the short sell and get a seperate loan for the remaining balance to pay the bank off in full. I don't really see a good way out for you in this case.

Thanks for replying to me DebtEnder. I am looking at my divorce papers now, and although it does have the "hold harmless" language for other debts, it looks like the house debt does not. Basically it states that husband and wife are both each responsible for 50% of the debt of the deficiency if there is one when it sells or refis. Well, technically the house will be sold at auction after foreclosure, so I hope that this applies?

I would love to sell this house via short-sale, but I have been trying and I am getting nowhere. I am out of money now and this ship is going down, baby. Now I have to do something, but I am so confused about whether bankruptcy is my best option in this case. Before this divorce happened, I didn't know hardly anything about GA law. Now I've read so much I feel like I could pass the BAR exam.

[BinGA]

Well, perhaps I was mistaken. I just read some more, and in another section it says I need to "hold the ex-wife harmless and fully indemnify her against any liability with respect to said property, including but not limited to any liability connected with the first mortgage."

Ugh. I feel like I am so stuck. Can someone give me a clue as to how to get out of this mess?

[iv65536]

This situation looks like a case where you and your ex are jointly and severally liable for any deficiency. What may be key here is that you made a good faith effort to sell or refinance.

[Mensa1]

You have a couple of major issues here... and I would attempt to dissect them individually and not look at this as one problem, but two.

First off, I would contact your div atty and discuss your potential liability for the real estate. You may or may not be liable to your ex-wife. It would be sort crappy if you were, since the downfall here is not of your making, but of poor market timing and economy factors. If not for those, you would have refi'd the mtg and gotten her off the liability. It would be a travesty for you to be held liable for 100% of the mkt drop and her held for 0 of this situation. You both bought the house and houses are illiquid assets, and hence things like you face now are entirely possible. You may be entitled to do a modification of the decree due to the circumstances, and this exactly what I would be asking for. Also ask atty if your liability to ex-wife can be expunged in Bk...? I know child support cannot, but not sure about your real estate agreement in the decree. I think you have a shot at here, and I would establish those issues with Bk atty.

Then act on getting the house sold, via short sale. Many lenders in short sale are forgiving debt, even in states where def judg's can be obtained, so do not automatically assume that the only option here is a judg if it sells for way less. The important thing here on all these problems is to be proactive. Don't sit back and let this problem(s) mushroom on your because they will surely get BIGGER...... Good luck on the outcome and post the progress as you go because your experiences will help others who follow you.

[BinGA]

You guys were right. I spoke to my BK attorney today and he said the same thing. Even if I file bankruptcy and get the banks off my back, my ex-wife could still come after me. He is going to look over my divorce papers to be sure.

Not exactly a situation I wanted to be in. And I'm not really sure where to go from here. Hopefully my BK attorney can give me some guidance. I am also going to contact my divorce attorney to see what he says.

[enuffznuff]

Can't you just list your ex as a creditor as well, discharging any liability for deficiency you might owe to her?

[helpmeout]

Well, perhaps I was mistaken. I just read some more, and in another section it says I need to "hold the ex-wife harmless and fully indemnify her against any liability with respect to said property, including but not limited to any liability connected with the first mortgage."

Ugh. I feel like I am so stuck. Can someone give me a clue as to how to get out of this mess?

Kind of thought something like that would be in there. It's in my divorce decree, along with wording that makes all aspects of the order support, which is not dischargeable. Fortunately, I got my ex-husband's name off of everything before I filed.

Have you considered asking your ex if she is willing to consider banktruptcy? If you both file, then there's no problem. Of course, this is all going to depend on how amicable or bad the divorce was.

[BinGA]

enuffznuff Great question! I will ask about that.

helpmeout She has expressed that she would maybe file bankruptcy, but I'm afraid her lawyer will point out that she doesn't have to and that she could just sue me. And after the stuff she has already put me through, I don't trust anything she says. I'm pretty sure that this mortgage is her only major debt.

[BinGA]

OK, just got off the phone with a bankruptcy attorney. I tried to get as much info as I could. It's still a little confusing, but here goes. He said that since the ex-wife was held harmless in the divorce papers, the mortgage is known as a divorce support obligation. He said that once I file bankruptcy, the mortgage company would have to go through the confirmation process first to go after her for the deficiency, which he said is very unlikely. Not sure what this confirmation process is exactly but I will be looking it up. Also, for her to have her lawyer raise the issue to the judge about this whole situation, she would likely be paying her lawyer $4-5k. So she may find that it would be smarter to just file bankruptcy.

It is a little more clear now but I have more research and consideration to do. If anyone wants to add their 2 cents or advise, please feel free. The good news is, I just got my Christmas bonus! It is going to help greatly! Also, just 6 more car payments and it is paid off! That's a total of about $1500 left. And that will be $260 a month less coming out of my pocket. There may be hope after all. I guess time will tell.