Stall Foreclosure to Delay BK Filing?

[Dancer]

We own 2 homes; each in our own names. Both are underwater. We live in my house. DH hasn't made a mortgage payment in 6 months and we are trying to do a short sale but we've just learned the bank is rejecting it and wants a promissory note instead. We're meeting with the attorney to discuss filing for BK.

I work part time but my job is ending shortly. My DH earns above the median for our state but I think it's possible we could pass the means test on his salary alone. My part time earnings probably place us over. Plus I've got stock options I need to exercise and those should count as earnings.

Also I'm considering pulling money out of my savings (my name on the account only) to pay off my private student loans.

I'm thinking since we are both underwater, it might be beneficial for both of us to file BK. If I pay off my private student loans we would need to wait to file so it's not seen as a preferential payment (90 days since this isn't an insider?).

We live in Illinois. Supposedly foreclosures here are taking almost 2 years. Obviously we need specific advise from the attorney and I don't know where my DH is in the foreclosure process.

Would it be possible to stall the foreclosure process so we can put off filing? I think we might also be able to get a renter into the house too.

[BobMango]

I'm not sure why you'd want to stall the foreclosure. Payments on your house are current I assume and no one is living in the other house? If you could find renters and get caught up and have it be cash flow positive and it's not too far underwater and you think it will appreciate in the next 5 years or so I guess you might want to stall, but that's a lot of ifs. In my case, our rental property was foreclosed and sold ($86K sale on former $300K+ property) and THEN we filed once the title transferred. If you don't want to or can't keep both homes I'd just as soon get it out of your name now rather than later.

As far as the student loans go, I'm not sure that would be viewed as preferential payment since they won't be discharged and those must be paid in any event, but an attorney or perhaps other posters with more experience with student loans can opine.

It sounds like you might be able to file singly but that doesn't resolve your DH's house issue. I'd be interested to see what the attorney says.

[Dancer]

Thanks for the reply. I was thinking that we had to file before the foreclosure to protect against the tax liability if the lender forgives the deficiency. Although I assume the lender would come after my DH for the deficiency since they already have our financial information and have rejected the short sale. So if we know the bank will come after us then perhaps we should wait for that to happen and then file.

As for me filing alone, I wasn't planning on filing at all. We had planned on DH filing by himself because his house is the one that will be foreclosed on. Payments on my house are current and no one lives in DH's house.

The only reason to delay the foreclosure would be to delay the BK filing. If we get 6 months out from my last paycheck, then we could probably due Chapter 7.

I'm really on the fence about including me in the filing. My only issue is an underwater mortgage. If I am part of the filing, then I would not reaffirm my mortgage but continue to pay it and then if it's still underwater after the BK is discharged, I could let it go in foreclosure without the risk of a deficiency hanging over my head. Is this reasonable at all?

Also, our attorney recommended that we try a short sale instead of doing bankruptcy. Another attorney told us that short sales were for suckers and recommended bankruptcy 6 months ago. I'm starting to think that the first attorney was right.