Panning ahead for BK chapter 7. My plan and some questions.

[Esidedude88]

You can read back some of my old threads and see my story. In a nutshell, I purchased a townhouse last fall and it turned on to be a horrible investment and a lemon. I'm going to walk. I have two mortgages on the place, which means I could be on the hook for the deficiency on the second one. I might need chapter 7... Here's my plan and a few questions.

Let the foreclosure process happen and see how it all turns out. I am only going to file if hit with a deficiency judgement or collection I can't handle. Otherwise, my goal is to simplify my life and just move forward making different decisions. I'm moving back to the city (public transportation only for a few years until I have my fiancees in order) and renting a simple studio apartment. I want to be debt free.

Here are some of my questions about preparing to file.

1) Will selling my car to Carmax and paying the remaining balance on the loan hurt my BK case? I plan on doing this in August, which would be about 6-8 months before I would ever consider filing. I don't need or want the vehicle. It's complete unaffordable and impractical for where I will be living.

2) Because my hope is to not have to file, I'd like to start hitting my other debts hard to see if I can pay them down/off (credit cards, student loans, installment loans). My goal is a debt free lifestyle. HOWEVER, if I get hit with a deficiency judgment, I wouldn't be able to pay it- plain and simple. How would the trustee view my attempting to pay off my debts over the period of the last year and then suddenly filing BK just because of the deficiency? I'm still a little confused about the whole look-back period (I'm in MN if it matters). Will the trustee dismiss my case for trying to pay off debt? I have the honest of intentions here. If I have to file, should I just stop paying on all my credit cards and unsecured installment loans for a certain period of time?

3) I have student loans, one of which my dad co-signed on. Does trustee expect me to stop making payments on those too?? I don;t mess with student loans... EVER. That would be really bad for my co-signer and me. He's nearing retirement and couldn't take the hit. Overall, is the trustee okay with you paying on your student loans during the BK process?

This is all very confusing and stressful. I'm trying to do the right thing here, but I'm confused. I would love everyone's insight. I want to be as prepared as possible.

[SmartMoney]

wow, no one has replied????

If you declare BK upfront, be sure to list the property as "surrendered" - not retained. If they do not have to take FC action against you and both debts are included in the BK, you should be safe and the quickest path to redeemed credit. Your car and other mortgages, even debts, can be reaffirmed. Whatever you do, do not do anything without legal counsel. State laws vary greatly.

[LadyInTheRed]

wow, no one has replied????

If you declare BK upfront, be sure to list the property as "surrendered" - not retained. If they do not have to take FC action against you and both debts are included in the BK, you should be safe and the quickest path to redeemed credit. Your car and other mortgages, even debts, can be reaffirmed. Whatever you do, do not do anything without legal counsel. State laws vary greatly.

Wow, that's how you begin your first post???? Everyone who answers questions here does it voluntarily and answers what they feel comfortable answering when they have time. Some questions get missed.

Esidedude88 Do not reaffirm a mortgage and do not reaffirm a loan on a car you do not want to keep.

Do consult with an attorney or 3 as early as possible in your BK planning process.

If you try to pay off your debts without filing BK, the fact that you have been working hard to pay down the debt will not cause any problem for you. Certain payments made to creditors within 90 days of filing (or longer if you pay an insider, e.g. a family member) could be considered preference payments in which case the trustee might force the creditor to return the payments to the trustee for distribution to creditors. If that happens, your case would be an asset case which would mean it would take more time for the trustee to administer and close your case. But, it would not delay your discharge.

As soon as you know you will file BK, unless your attorney advises otherwise, stop paying all dischargeable unsecured debt and all secured debt for assets you don't plan to retain and are prepared to have repossessed.

You would not be forced to stop paying on your student loans, or on any debt for that matter.

I think your plan sounds reasonable if your goal is to avoid BK. But, if you aren't successful and have to file BK anyway, you will have only delayed the inevitable. If you do get sued for a deficiency, you should file BK before judgment is entered.

It is never too early to consult with an attorney and get professional advise about your plan.

[leonel9]

Another thought to consider: If you pay off negative equity and sell your car to Carmax, what impact will that have on your means test calculation? It would be unfortunate if that extra monthly amount, if any, would make you ineligible for a CH7 and require a CH13.

[LadyInTheRed]

Good point, leonel9.

[angles]

from a different viewpoint...reading your post it sounds like you are not sure about filing for BK and that it hinges on a deficiency judgment. from my experience a deficiency judgment from a defaulted home loan is somewhat rare. you also made a comment on paying down heavily on your bills which is a great approach but have you worked out what your monthly expenditures and income is? I would start there to see what you have and what is going out to make a more informed decision on the best course of action.