Undecided Whether to File Chapter 13

[Bunnysparkle]

Hello. I am new to this forum. I have been trying to educate myself on how to save my home from foreclosure. Please note that I have sent a long email to my attorney with the questions/concerns below, but I would love the opinions of people who have gone through this. I lost my job when needing to care for my mom who had a terminal illness. I had only been able to get part time work (until two weeks ago) despite my best efforts of applying to over 600 jobs over the last two years. This financial hardship put me behind on my mortgage payments. I do not have anyone to lean on as I am by myself. I applied to mortgage assistance, but was denied. I appealed and was denied again. Last week, my mortgage loan was sold to Morgan Stanley and the new servicer is Selene Finance.

1. I retained a bankruptcy attorney because after my first few meetings with him, it seemed like Chapter 13 was my only option. Nothing has been filed yet. As I have been gathering documents, reading about the experiences of others, and trying to educate myself, I am having serious doubts now about what I should do. My ultimate goal is to keep my house. I have been here for 11 years, have 100k in equity, and planned to retire in this house.

2. I have expressed my concerns to the attorney that with my income from a new job being so low (half of what I am used to earning), how could a trustee possibly approve the repayment plan. I am able to start making my regular mortgage payment now, but with very little left over. My attorney approximated the monthly payment, but I said to him, I am not sure how this is going to work due to my limited income. I am finding that he is not being completely transparent with me. I already paid him $2200 (I borrowed it from a good friend) as a retainer. The restrictions on the Chapter 13 are overwhelming to me. I will not be able to contribute to a 401k either and at 57 years old, this is not a good thing.

3. IF I were to file Chapter 7, would this put a pause on the foreclosure? I know that this does not do the same as Chapter 13, but what I am thinking now is if I can get the foreclosure paused for a few months, it gives me more time to come up with the past due mortgage payments.

4. The other thing I am going to do is tomorrow is call the new servicer and ask if I can apply for mortgage assistance through them since this is a new servicer. This would put another pause on the foreclosure.

5. As of right now, I have only received an 'Intent to Foreclose' letter from my previous mortgage servicer. There is no sale scheduled yet nor has this been filed in a court yet.

I appreciate any guidance and/or feedback from this community. Thank you!!!

[justbroke]

Welcome to BKForum.

1. My ultimate goal is to keep my house. I have been here for 11 years, have 100k in equity, and planned to retire in this house.

With $100K in equity you will be in a 100% plan. You will need to repay all of your unsecured creditors 100% plus pay the Trustee another 10% on top of that.

2. I have expressed my concerns to the attorney that with my income from a new job being so low (half of what I am used to earning), how could a trustee possibly approve the repayment plan. I am able to start making my regular mortgage payment now, but with very little left over. My attorney approximated the monthly payment, but I said to him, I am not sure how this is going to work due to my limited income. I am finding that he is not being completely transparent with me. I already paid him $2200 (I borrowed it from a good friend) as a retainer. The restrictions on the Chapter 13 are overwhelming to me. I will not be able to contribute to a 401k either and at 57 years old, this is not a good thing.

First, running the numbers is what they do. If you want to save the home it must be feasible to start with otherwise you will never save your home. If you don't have enough money to confirm the plan, at least this will stave off the foreclosure for now, but you need to have sufficient income to pay your mortgage, the mortgage arrears, the trustee fee, and residual attorney fees. If you have only a few dollars left after that then you cannot save your home.

Additionally, you can keep contributing to a 401(k) in a Chapter 13, so I don't know where you obtained that information. Now, if you don't make enough to keep your home and keep contributing to a 401(k) then the way your fund your Chapter 13 is by not paying into a 401(k).

3. IF I were to file Chapter 7, would this put a pause on the foreclosure? I know that this does not do the same as Chapter 13, but what I am thinking now is if I can get the foreclosure paused for a few months, it gives me more time to come up with the past due mortgage payments.

Yes, they both do but a Chapter 7 will never save your home. Never believe that you can make up all the past-due mortgage payments, late fees, attorney fees, and other amounts due (BPO, drive-by fees, etc). A Chapter 7 will just delay the inevitable. Additionally filing just to delay a foreclosure is a bad use of filing bankruptcy if you actually need to file it again within the year. How are your property taxes paid? Are they current? Is your insurance also up to date?

4. The other thing I am going to do is tomorrow is call the new servicer and ask if I can apply for mortgage assistance through them since this is a new servicer. This would put another pause on the foreclosure.

Anything could help. In Florida, we have Mortgage Modification Mediation through the bankruptcy court (Chapter 7 and Chapter 13) to allow a debtor to negotiate with the creditor to reduce the payment.

5. As of right now, I have only received an 'Intent to Foreclose' letter from my previous mortgage servicer. There is no sale scheduled yet nor has this been filed in a court yet.

Then you are not in foreclosure. You are only in default at this time. The state law must have required they send you an Intent to Foreclose and/or a Notice to Cure before filing suit.

In your case I would say that bankruptcy is a strategy and you really need to ask these questions of your chosen bankruptcy attorney. I don't know if you can truly afford your home. It should be 33% of less of your income. If it's more than that and certainly if it's more than 50% of that amount, then it is more likely that cannot afford the home. Now, if your court does the Mortgage Modification Mediation as we allow here in the Florida bankruptcy courts, this may be to your benefit to file. However, I think you need a Chapter 13 because it will probably be impossible, under a Chapter 7, to come completely current or get a modification.

Bottom line, we generally say Chapter 13 to save a home. Ask your attorney to sit down and run the numbers through the Means Test and see if you even have any disposable income. If your disposable income is deeply in the negative, that shows you cannot meet all of your obligations.

(Notes: with $100K in equity the debtor may need to pay the unsecured creditors at least $100K over the life of the plan. For a 36-month plan that could be $2,778.00 a month for 36 months if there is $100K in unsecured debt. That does not include the payment to the mortgage, plus the mortgage arrears, plus the trustee's fee, plus any residual attorney fees.)

[Bunnysparkle]

Additionally, you can keep contributing to a 401(k) in a Chapter 13, so I don't know where you obtained that information. Now, if you don't make enough to keep your home and keep contributing to a 401(k) then the way your fund your Chapter 13 is by not paying into a 401(k).

I do not currently have a 401k. I asked my attorney if I can contribute with a new employer and he said it is decided on a case-by-case basis.

First, running the numbers is what they do. If you want to save the home it must be feasible to start with otherwise you will never save your home. If you don't have enough money to confirm the plan, at least this will stave off the foreclosure for now, but you need to have sufficient income to pay your mortgage, the mortgage arrears, the trustee fee, and residual attorney fees. If you have only a few dollars left after that then you cannot save your home.

So, based on my current credit card debt and past due mortgage payments, my attorney said that the repayment plan would be approx $580 over 5 years. This is in addition to my mortgage payment. After paying the monthly repayment and my mortgage payment, this leaves me with about $100 to pay for food, utilities, etc. I expressed my concerns, but he said as long as I make the payments (I guess it does not matter if I have anything leftover) it will be fine. This is an experienced bankruptcy attorney (over 36 years), but I guess I am not trusting it because it does not make logical sense to me.

I am fighting so hard to keep my house because I literally have no place to go. I will be living in my car.

[justbroke]

The only way to keep your home is either (a) mortgage modification, (b) refinance, (c) coming current through a lump sum payment, or (d) a Chapter 13. It could also be a combination of (a) and (d). The reason your attorney is saying "if you want to save your home" it's going to be $580/month over 5 years is because (a) you probably qualify for a 36-month plan but you can't afford $966/month rather than the $580/month, and (b) you have significant arrears. I did quick math and you need to pay $34,800 into the plan. Even if the Trustee gets 10% and say the attorney gets $2K from the plan, that's nearly $30,000 or $500/month over 60 months. Are you $20,000-$30,000 in arrears on your mortgage? Is a vehicle also included in the plan?

Of course you can fund a Chapter 13 and have $100 left over for everything else. Your attorney is saying that, to save the home you have to starve. What the attorney is likely not telling you is that your Chapter 13 would be likely to fail. It appears that you simply cannot afford to catch up on the arrears (especially if they are in that $20K - $30K range), keep paying your mortgage, and have a reasonable amount of disposable income to survive.

If you have no other debt (unsecured/secured) then it may be better to have your attorney attempt a mortgage modification through a Chapter 7 if your bankruptcy court has such a program.

My unfiltered thoughts: you simply cannot afford the home and make the arrearage payments. This is likely evidenced by the fact that the mortgage servicer would not modify your loan. They did the math and found that you could not survive on the residual amount after accounting for a modification or forbearance. They look at your residual income after paying for the mortgage. If you don't have a significant amount for expenses and for an emergency, then the banks don't approve mortgage modifications; they don't want another default. Hopefully your attorney can come up with a plan that doesn't have you in a Chapter 13 that is likely to fail. If it's strategic, then make sure you won't need bankruptcy for at least 2 years.

[Bunnysparkle]

The only way to keep your home is either (a) mortgage modification, (b) refinance, (c) coming current through a lump sum payment, or (d) a Chapter 13. It could also be a combination of (a) and (d). The reason your attorney is saying "if you want to save your home" it's going to be $580/month over 5 years is because (a) you probably qualify for a 36-month plan but you can't afford $966/month rather than the $580/month, and (b) you have significant arrears. I did quick math and you need to pay $34,800 into the plan. Even if the Trustee gets 10% and say the attorney gets $2K from the plan, that's nearly $30,000 or $500/month over 60 months. Are you $20,000-$30,000 in arrears on your mortgage? Is a vehicle also included in the plan?

Of course you can fund a Chapter 13 and have $100 left over for everything else. Your attorney is saying that, to save the home you have to starve. What the attorney is likely not telling you is that your Chapter 13 would be likely to fail. It appears that you simply cannot afford to catch up on the arrears (especially if they are in that $20K - $30K range), keep paying your mortgage, and have a reasonable amount of disposable income to survive.

If you have no other debt (unsecured/secured) then it may be better to have your attorney attempt a mortgage modification through a Chapter 7 if your bankruptcy court has such a program.

My unfiltered thoughts: you simply cannot afford the home and make the arrearage payments. This is likely evidenced by the fact that the mortgage servicer would not modify your loan. They did the math and found that you could not survive on the residual amount after accounting for a modification or forbearance. They look at your residual income after paying for the mortgage. If you don't have a significant amount for expenses and for an emergency, then the banks don't approve mortgage modifications; they don't want another default. Hopefully your attorney can come up with a plan that doesn't have you in a Chapter 13 that is likely to fail. If it's strategic, then make sure you won't need bankruptcy for at least 2 years.

Hello. Thank you for the information. So my past due mortgage payments total $17,800 (7 months behind plus a lot of fees added in), my credit card debt is $10k, the attorney fees (less the retainer already paid) is $3800, and then yes, of course the trustee fee to be added in. When I applied for mortgage assistance I was actually making less than I am now, and yeah, I realize this is why they denied me. Joined this forum to try and educate myself in addition to what the attorney is telling me. I like to hear from other people who have gone through the process. I have no choice but to fight for my house because I will be homeless if I don't. I continue to apply to jobs that are in my usual career and pay much more. Additionally, I am working on getting a second job. Thanks again.

[justbroke]

My calculations show that you would be in a 100% plan. You would need to pay back $10K of credit card debt, plus the arrears, plus fees. I just did quick math and that is indeed about $580 over 60 months. There's no way around that because you have $100K in equity with only about $22,975 protected under Maryland law. That leaves $77K that you must pay the unsecured creditors. This is why you must repay the $10K in unsecured debt.

Since you are in a 100% plan, the second job will likely provide relief. Ask your attorney and make sure they don't try to make you pay your "disposable monthly income" (DMI) each month. You'll be in a 100% plan and I just don't think anyone should pay DMI when in a 100% plan. They should pay the plan base / 60.

While Maryland may not have a Mortgage Modification Mediation (3M) program, please ask you attorney if they can help you with that inside the Chapter 13. I think a creditor is more motivated to participate in modification if a person is in bankruptcy; hence the rise of the MMM programs in Florida within the bankruptcy court. It's worth a try.

[Barbisi]

Wow, justbroke Maryland offers a dismal homeowner's BK13 exemption compared to Colorado, which was 75K when we filed in 2017. Is it based on the number of debtors or does each state just arbitrarily decide how much equity the debtor(s) can keep and not have to repay to creditors?
Good luck Bunnysparkle on navigating through the pitfalls of BK13!

[Bunnysparkle]

Thank you. I had a call this morning with my attorney and I actually feel so much better now. We will be filing next week. They will make my payments lower for the first 6 months. This helps give me more time to find a higher paying job and possibly a second job. It will definitely be a long journey, but at least I’m saving my house and will have a place to live into retirement. I’ll of course still have the option to sell my house, but that’s not in my plan

[justbroke]

Is it based on the number of debtors or does each state just arbitrarily decide how much equity the debtor(s) can keep and not have to repay to creditors?

It is likely based on the phenomenon known as "public policy." In Florida, we have lots of retirees and they are a very strong lobby! That's probably why, in 1980, we amended our State Constitution to increase the homestead exemption from $50,000 to an unlimited homestead exemption (Art. X, Sec. 4). When it was first passed, many counties were not happy because it actually took many properties off the tax rolls.

We also have Save Our Taxes (SOT) which prevents counties from increasing property taxes by the lesser of 3% year-over-year or the consumer price index, on a homestead. I'll tell you that SOT is really worth it if you've been in your home a while... and it's portable within Florida.

[justbroke]

Thank you. I had a call this morning with my attorney and I actually feel so much better now.

I happy to read that. Just do you absolute best to stay in plan and to find a second job so that you can survive. We are all rooting for you!

[Barbisi]

Bunnysparkle, remember you've always got a place to vent when things seem too tough - we're always here!
This a great community of dedicated BK13 survivors!
justbroke thanks, that explains a lot of why Florida would be a good place to be in a BK13 - if only the weather wasn't so hot and sunny and the hurricanes so frequent, LOL!