Ch. 7 v. 13?

[stressedinTN]

Apparently, my home should be protected by the homestead exemption after the mortgage holder's right to get back the subsidy it's paying towards my mortgage if I sell. There's some risk based strictly on Zillow listing and some comparable home sales, though. But some damage to the house should make the price less.

Apparently, if I file Ch. 7, then the trustee could wait to sell the property. Housing prices are rising here, and with comparable sale prices, the trustee might decide to sell it. At that point, I understand all debts would have been discharged, so I couldn't really convert to a 13. Also Ch. 7 holds the risk if something catastrophic happens latter -- massive medical bills -- I can't use Ch. 7 for quite awhile.

I'm hearing Ch. 13 would be better because it completely eliminates the risk of losing my home and still leaves Ch. 7 available for me. Even though my car loan is current with only $1000 left, I'm hearing put my car into bankruptcy. With attorney fees, trustee costs (which are over 4%), and the car, I would pay $100/month for 3 years. That's far less than my minimum payments and even less than my current car payment now, though instead of having my car paid in less than a year, it's stretched over 3. If the car completely goes out, the amount that is actually paid towards the car would be pretty minimal for a relatively brief time -- about 2 1/4 years over my payment time frame now.

This is sounding pretty good to me. I would be able to easily pay for all my medical care now -- all of which has required payment in full at time of services. I'm being told that given the circumstances of my need for specialized medical services, continuing that will be encouraged by the trustee. She apparently is very concerned when people don't seek necessary medical care.

It seems REALLY good, but I'd love second opinions.

Thank you!

[LadyInTheRed]

I would not file a Chap 13 if I qualified for a Chap 7 unless there is a good reason to do so. I am not sure you have a good reason.

Have you talked to an attorney about whether the local trustee is in the habit of holding out for an increase in value? Have you had an appraisal or at least gotten the opinion of an experienced local real estate agent about the value of your home taking its condition into consideration? Your exemption is based on the value of the home on the date you file BK. If the trustee does not agree that the property is exempt, they have to object to the exemption and you could go to court to support your valuation or decide then to convert to a 13.

You have a right to convert a Chap 7 to a Chap 13 assuming it is the first conversion and you can fund a feasible plan. You do not have right to convert form a 13 to a 7. You would have to get approval for a conversion to a 7 or stop making plan payments and wait for the 13 to be dismissed so you can file a Chap 13, which puts a second bankruptcy on your credit report.

I think a better option is to start with a Chap 7 and convert to a 13 if you run into trouble. Please discuss this with an attorney before making a decision.

ETA: If you have massive medical bills in the future, you can file Chap 13 if enough time hasn't passed to allow a Chap 7.

[stressedinTN]

That's extremely, extremely helpful. I had some concerns that this attorney was simply pushing Ch. 13 when he told me that they put everyone into Ch. 13. He said they did so because they can include attorney fees in the plan and people otherwise can't pay attorney fees. I think I could pull together Ch. 7 attorney fees. I, of course, know Ch. 13 attorney fees are higher than Ch. 7. I have two more consults scheduled.

You are so right that KNOWING the value, either via appraisal or BPO, would make tremendous sense. I would think including that in the filing would help document value at the time of filing would make any future increase in value, such that I ended up with seizable non-exempt equity, a non-existent risk. At the same time, I think I vaguely remember something about the value increasing and someone unexpectedly then losing their home. I'm having a hard time understanding the two. (1) the value of the home at the time of filing determines whether the exemptions cover the equity, and (2) the trustee being able to do ANYTHING to change that if the value changes. Would you please clarify?

I think what you've especially helped with is leading me out of the rushed feeling he left me with to simply file immediately. I need more information.

HUGE THANKS!!!!!!!!!

[LadyInTheRed]

Go talk to another attorney. I would not use an attorney who told me they put everyone into a Chap 13 in order to pay attorneys fees. That is a sign that he is not going to give your case the individual attention he should. While I could see filing a Chap 13 if your wages are already garnished making it impossible to save for attorney's fees, in most cases it seems like a stupid reason to file a Chap 13 if you can qualify for a 7.

Unless you have an impending foreclosure or car repossession or a creditor has sued you and is close to getting a judgment, then there is no hurry to make a decision. Actually, if you really think the value of your home is likely to increase quickly, that would be a good reason to file now. But, if you get an appraisal or broker's opinion that says the value is low enough to exempt your equity, start with a 7 and convert if you run into problems with the house.

At the same time, I think I vaguely remember something about the value increasing and someone unexpectedly then losing their home. I'm having a hard time understanding the two. (1) the value of the home at the time of filing determines whether the exemptions cover the equity, and (2) the trustee being able to do ANYTHING to change that if the value changes. Would you please clarify?

That sounds somewhat familiar, but is a very unusual situation. It is hard to comment without knowing all the details. I think it might have been somebody whose home was completely underwater so they had no equity to exempt and the trustee made some kind of deal with the lender. A local attorney should know if the local trustees are likely to do such a thing. A trustee can't change the value of a home. But, he can argue that you valued it too low in which case you would either have to settle or argue in front of the judge.

[stressedinTN]

Thank you so much. The more I thought about the attorney's advice the less I felt confident that he was truly putting my interest's first. I, not he, suggested a 3 year plan. He calculated me as on a 5 year plan when I clearly qualify for 3 and could easily do it.

Phenomenal news! The house's value is a nonissue. I have no equity and may never have. My mortgage is through a government program and is subsidized. I have to pay that subsidy back if it's sold. The attorney pointed that out. I found out that it's secured. I have time to think about this. The time pressure of continuously building lots of equity and the value rising is off.

Thank you so much again! You're invaluable, and I truly appreciate your thoughtful, highly informed responses.

[BKAttyMI]

Just to throw my 2 cents in here...you do NOT have the right to convert from a 7 to a 13. You DO have the ability to convert a 13 to a 7. Once you've opened up a bankruptcy estate in a 7, you are at the mercy of the Trustee. If you live in an area with aggressive Chapter 7 Trustees, I wouldn't hesitate to suggest a low payment 13 versus a 7. The risk often far outweighs any benefit of doing a 7.