Considering BK - Need Advise

[bamorris2]

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[lrprn]

Welcome to BK Forum, bamorris2 - glad you found us!

Let me first say that this is a VERY humbling situation, coming to the realization that BK may be my only way out...

Every one of us here has felt the same way. It is humbling to the extreme.

**Which BK would be right for us, 7 or 13?

Since you and your wife are making $84,000/year gross and the median income for a family of 4 in California is $72,996 - http://www.usdoj.gov/ust/eo/bapcpa/2...come_table.htm - given what you've told us so far, you are well over the median income for your family size in CA so most likely you qualify for Ch 13, not Ch 7.

One thing I noticed is that your debt is mostly secured with 50% of your gross owed to non-secured. You are currently paying 50% of your income for housing as well. Filing bankruptcy won't help you as much as it would if you had a lot more unsecured debt. Just getting even by discharging your unsecured debt assumes that nothing is going to change in your futures - that's a risky way to live while you pay off your secured loans for years and years, even after your bankruptcy is discharged. If you file now and something happens (one of you loses your job, medical problems, etc....the list of possibilities is endless), you could find yourself right back where you are now, except bankruptcy can't help you again for four years if you file Ch 13 now, and seven years if you file Ch 7.

**We'd like to keep our house, as we really can't downgrade anymore with our family size.

Since your house is costing you 50% of what you take home, have you considered giving up the house and finding a good rental for less per month, then also giving up the travel trailer? That could free up a fair amount of cash/month. I'm not saying that this is the right answer for you....just wanting you to see that there are alternatives. Sometimes we get caught in a certain mindset and it's very hard to see other options you might have. A bk lawyer can help you here as well.

**BIGGIE HERE - What would happen to my 2005 Ford truck that is paid for?? I'd hate to loose it, but I would if absolutely necessary.

Hard to say. Since it's a fairly new car and paid off, that's a very tempting thing for the trustee to take to sell for many thousands to give to your creditors or ask you to pay what the car is worth to keep it. I'd ask a few experienced bankruptcy lawyers in your area about this. It's too bad that you paid the car off so recently - the loan would have protected it in this situation.

**What about our travel trailer. Would we have to give that up, or could we continue to pay, and keep it??

Again, hard to say. A travel trailer is a luxury item, not a necessity. Since you are upside down on the loan, it's less likely the trustee will want it. An experienced bk lawyer will have a much better idea of what to expect in your bankruptcy district.

What are my options? OMG, how/why did we get ourselves into this sitation!!!

Start by learning as much about bankruptcy as you can - this forum can help, and there are excellent websites out on the net as well. Make appointments for free consultations with 3-4 bankrutpcy lawyers in your area right away and lay out everything you've told us here. These lawyers know the local court customs and prior rulings - something we don't. You will learn a great deal and have a better feel for what's going to work best in your situation for the long haul.

Hang in there. You are already taking the first important steps to really deal with your problems rather than just keep finding loans to stay even. Borrowing money to pay debts is a very slippery slope. Lots of us here made the same mistake - it isn't the end of the world. Let us know what you find out from your lawyer consults, and keep asking questions. We're here to help you as much as we can!

[bamorris2]

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[HHM]

And IF they won't agree to a shortsale, and if I walk away from it and allow them to foreclose, then what happens to the deficiency balance? Can they come after me for a money judgment after they sale the house?? If so, then I guess that WOULD force me into BK..??..

The deficiency balance issue depends on what state you are on. You need to check the foreclosure laws of your state, because many states do not allow a deficiency balance to be charged to the debtor on mortgages. Generally speaking, the 1st mortgage is not entitled to a deficiency but the 2nd mortgage may be allowed.

The other issue with a short sale is the tax liability. If the bank agrees to a short sale, you will get a 1099 on the amount of the debt that was forgiven and you may have to pay income tax on that amount (unless you can satisfy the IRS conditions to be considered insolvent.).

[bamorris2]

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[HHM]

No offense, but you can google just as good as we can

Anyway, from what I can tell, in CA, if the foreclosure is done via the non-judicial route (and most foreclosures are done that way), then the lender is NOT entitled to a deficiency judgement. The other caveat is that the loan must have been a purchase money loan, i.e. money you borrowed to "buy" the house. For example, if your 2nd Mortgage HELOC was taken out after you bought the house (i.e. for home improvements), the lender would be entitled to a deficiency judgement.

Note, if the lender does a judicial foreclosure, then they can seek a deficiency judgment.

In any event, you would really need to talk to an attorney in CA to get accurate advice.

[phoenix44212]

But aren't deficiency judgements still dischargeable in bk?

[bamorris2]

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[reallynervous]

One thing to think about...

You may not be able to count on having that full amount you would be saving on your mortgage to apply to your credit cards if you are currently using your cards. What are you using your cards for currently? If you use them for living expenses (food, gas, clothing, etc) then you will have to factor the money you would normally put onto the credit cards into your expenses as you will now be paying cash for them.

Maybe if you are still using your credit cards you could stop using them and get an idea of what your actual expenses are and how it goes living on just cash. That might help you to determine what you would really have available to spend on rent (remember to count on renter's insurance as well).

Good luck to you!
reallynervous