Can I file? Please help! Need decision by EOM

[grandmasusan]

I am so glad I found this site. It is wonderful for people like me who feel their live is over. I cannot believe I am thinking of filing BK, but here is my situation and why I need help. I apologize in advance for this being long and my random questions.

I have 1.2m in secured liens on two properties, one is 715k, and the other is 495k. I am listing the rental for 445k, but expect to sell for 420k or less. This will be a short sale. Both properties are current but I cannot make the
3k monthly payment on the rental as I have property taxes totaling 4k on my O/O due in 3 weeks. I have talked to a few attorneys and they are advising me to stop making payments on the rental since its going to be a short sale anyway and will affect my credit. Here's my first question, I am trying to refi my O/O as it is a 2-28 and will adjust in six months. I want to move it to at least a 5 yr fixed even tho the pmt will increase 500 and I have a 11k prepay. Is it ok to do so even tho I am wanting to file BK in 3-6 months? I want to refi now while my credit is decent bc next month it will go downhill since I will start to have mortgage lates due to the rental.

I also owe 65k in 2005 IRS back taxes, 135k in credit card debt, and 140k in student loans. Income is about 180k per year but is decreasing each month since I am in real estate and paid commission with a small base salary. My take home is about 11k but my outgo is around 14k. Would I be placed in a Chap 13 still even tho I am negative due to my high income?

I do not know if I should go ahead with the refi on my current home and if I should still try to make payments on the rental. I am trying not to use credit advances. The last one I used was in early Feb for $1400 so I know I have to wait at least 3 months to file. Should I continue to make the credit card payments of 2500 each month or should I let those go? I just dont know what to do.

I have made appts to speak with local attorneys but would like input from people who have had experience in these matters.

Thank you all!

[CATCHMEIFYOUCAN]

You have to stop taking those cash advances! You might be liable to pay them back if you file too soon. Timing of you Bk from your cash advances is very important. I don't have assets, but plenty will chime in here during the day and lend their "experiences."

Best of Luck, CMIYC

[HHM]

Do you know which chapter of BK you even qualify for? With $180K per year (even decreasing), I don't see anyway you can qualify for a chapter 7, you are just too far above any state's median income and the other problem is, you have too much secured debt for a chapter 13. The last I checked, the max on secured debt for chapter 13 is $922,975. And also, you have too much unsecured debt for a chapter 13, you have $340K of unsecured debt based on what you said, but you are only allowed $307,675.

As it stands right now, you are one of the few individuals that would have to file a Chapter 11 (which is not terribly uncommon for wealthier individuals), but I don't see that you qualify for a chapter 7 (income is far too high) and you can't qualify for a chatper 13 because your debt is too high. There is nothing wrong with a chapter 11 per se, but it is very expensive and you will have to go to a "real" bankruptcy law firm (the kinds that handles the Trumps, and Airlines, etc).

[grandmasusan]

Oh, I didn't realize how high everything I owed was. I guess I thought the student loans and the IRS were separate from the cap of 308k. The student loans are my husband's so perhaps we can leave him out of this so I don't have to go to a Chap 11? I hope to have the rental sold in the next 90 days so then I would be under the secured limits as well. I guess I am trying to plan out my next 3-6 months

Do you think its ok that I still refi my current home or would a trustee frown upon this? I am not getting any cashout.

Should I let my rental and credit card payments go knowing that I will be filing in 3-6 months?

Thank you HHM!

[HHM]

Yeah, if you can get rid of the second home, then yes, you can probably get into a chapter 13. With the student loans being your husbands (would he be filing with you, or not), and they cannot be discharged anyway, leaving him out would get you under the unsecured debt window...Thus, doing those two things should allow you to file Chapter 13. However, income is still much too high for a chapter 7.

You can refi the home, the trustee is not going to care.

Just a note on "short sales", the bank still has to sign off on title, so they have to agree to take less than what they are owed, and regardless, you need to have all back property taxes paid when you transfer title.

[grandmasusan]

HHM, I was hoping you were on the forum. Thank you for giving me some insight. I feel better about what I need to do. Because of the info gained from this great site, I know what my 6 month gain plan will be.

1. Sell rental and stop making pmts
2. stop credit card payments of 2600
3. live on a cash and carry system
4. file without spouse

Even if I file without spouse, I still have to count his income toward mine, right? Do his bills still get counted?

Re short sale, what happens if bank doesn't agree to it? Should I call them and tell them what I plan to do? I had told the 2nd mortgage holder that I wanted to pay back the deficiency balance so they would agree to the short sale, but I don't have the money.

[lrprn]

You've gotten some excellent advice so far, GMS. Your first priority now that you have a plan is to discuss your very complex case with an experienced bankruptcy lawyer. Make free consultation appointments with 3-4 bankruptcy-specialty lawyers in your area now to get insights on the best way to proceed and get a feel for 'the mesh' between the two of you.

Finding the best lawyer will be crucial in your circumstances. The cheapest bk lawyers and bankruptcy mills are NOT for you - avoid them at all costs! With your high income, high levels of non-secured and secured debt, and property assets involved, you need a very knowledgeable bk lawyer who can ensure if you file, your outcome will be the best it can be.

Try these sites to start looking for experienced bk lawyers in your area:

http://www.martindale.com/

http://moranlaw.net/specialists.htm

Also you can:
- Ask lawyers or tax preparers you know for recommendations
- Check local bar associations, state bar groups and specialization/ certification programs for bankruptcy lawyers in your community
- Identify the bankruptcy trustees in your area by calling the bankruptcy court clerk or the United States Trustee's office, and ask the trustee or his staff which attorneys appear most frequently. You can ask for some names of attorneys you might interview.

Good luck and remember we're here for support and venting as needed. Keep us posted on what you find out, ok?

[bige1030]

Is this debt NOT primarily consumer debt? If so, the means test for Chapter 7 does not apply. There could still be an abuse finding, though, if you're able to pay something significant toward your debt, even if you were to pass the means test or if it doesn't apply due to your debt being primarily business debt.

Like HHM said, if you can't get your debt down, and if filing Chapter 7 would be an abuse, you'll have to file a Chapter 11. Those are interesting for lawyers, but the administrative overhead that they have isn't necessarily good for you. Creditors have more rights in a Chapter 11 than they do in a 7 or a 13...mainly the right to vote on the plan and to write you a plan if you don't propose a confirmable plan during the exclusivity period. Also, your unsecured creditors would get a committee to represent their interests, and I hear that's usually paid for out of the debtor's estate. One more thing - the filing fee for Chapter 11 is $1039, and there are quarterly fees that you must pay based on disbursements under the plan (but no less than $250 per quarter). So Chapter 11 is expensive...but it's still a bargain for those with *high* debt loads that they can't pay.

One of the nice things about 11, though, is that unlike in 13, you don't have to deal with a trustee. You manage your own affairs and become the trustee of your estate. In fact, they call you a debtor in possession, and you have all powers of a trustee over your estate. However, keep in mind that you are acting in a fiduciary capacity for your creditors (as far as your property is property of the estate), so you have to act with their interests, as well as yours, in mind.

Another great thing about 11 is the lien strip-down power. If you really wanted to keep those rental properties, you could strip down the liens to the value of the property at the time of filing. (NOTE: You *cannot* do this to your principal residence.) Also, if you had a car that you bought on loan, you could strip the lien down to the value of the car - regardless of when you purchased the car! The 910-day provision in 13 is NOT present in 11!

There are quite a few disadvantages and some advantages to 11. You have to consider which is the better bargain...trying for 7 and hoping to avoid a finding of abuse (after which you'll probably be allowed to convert)...cutting down some of that debt and filing a 13...or keeping all the debt, filing an 11, and making a lawyer very happy.

[grandmasusan]

Thanks for the additional info on Chap 11. I don't want to go into that if at all possible, eek! Sounds complicated, expensive, and questionable.

I do not want to keep my rental. I should have sold it when I moved into my bigger home but at the time I was making 20k a month and thought I needed the tax break, LOL. Then I got mixed up with a Lease to Own company who found renters who would buy the home in 2 yrs. Long story short is Lease to Own didn't pay the rent on time EVER and then the renters decided to bounce checks each month and finally moved out without notice. That was 6months ago. The credit card debt is mostly cash advances taken in the past 6 months to keep current with all expenses. That is why I want to file in 6 more months so I can put as much distance as possible from the last CA.

I am hoping that once the rental is sold, I will be under the secured limits to do a Chap 13. I will file without my spouse due to his 140k student loans. I know I can pay back some of my credit cards, but I can't pay back 135k without any help.

In doing my expenses, I still see myself negative with a net pay of 12k. How on earth is this possible I ask myself?!

I have a meeting with an attorney on Friday, he specializes in doing something to the 2nd mortgage if he can prove there is no value in the property. Basically he gets the 2nd to become unsecured...he was in the local paper yesterday regarding all the upcoming defaults on mortgages.

I will keep posting on the progress of my financial freedom. I am not sleeping, anxious, and unable to work because of all this!

[BKOnce]

Someone said... *Greed is always the seeds sowing all financial problems*...

Well, I say *moderation* & *humble life/satisfaction" are best shot, but then human beings can't avoid making mistakes sometimes because there are so many temptations, responsibility, & commitments in our life to start with anyway.

[SamanthaJones]

CH13 debt limits increase as of April 1, 2007.

By then you will meet the limits, maybe.

You sure should try a refi before filing- not only will get out from that awful loan you have, the increase of your house payment of $500/month will also decrease your disposable income for a repayment....~

[SamanthaJones]

THIS is a fun 'test' case for the viewers, comments?

I have got to offer my opinion, sort of like the game Clue:

You need to wait at least until summer to file anything, due to charges in Feb.

As of April 1, 2007 the unsecured limit is $307,000 (you pass), and the secured limit is $922,000 (you pass if you give up that rental). (Student loans don't count for unsecured debt, and can't be discharged, to my knowledge).

In 6 months, say:
Your house payment will increase by $500.
Your 6 month income lookback might drop dramatically? (Try projecting a means test).
I figure by waiting and crafting and taking advantage of legal loopholes and planning that a CH7 may be possible? Possibly buy a new vehicle with the max car payment amount allowed to be deducted?

HMM.

[grandmasusan]

SJ,

Thanks so much for your input. As we all agree I cannot file till summer, should I stop making the payments on the credit cards and rental? By then I will have refi'd my current residence so at least I will be safe for 5 yrs in mtg pmts. Problem is that I am having a tough time finding someone to do my loan and I need to get it done by eom. Maybe I will surf the mtg board for ideas.

[bige1030]

As of April 1, 2007 the unsecured limit is $307,000 (you pass), and the secured limit is $922,000 (you pass if you give up that rental). (Student loans don't count for unsecured debt, and can't be discharged, to my knowledge).

I have better news for the original poster...you're citing the old debt limits that will increase April 1, 2007. I pulled the new ones up from the Federal Register, and it looks like the debt limits for Chapter 13 are going to be, on April 1: $1,010,650 secured and $336,900 unsecured (up from $922,975 and $307,675, respectively).

For those interested, I'm not sure if I can give a direct link to the info, but go to

http://www.gpoaccess.gov/fr/index.html