Question Bankruptcy to get out of a house?

[big_slacker]

First the background:

I'm an outdoor type who moved to to the big city for career advancement. I bought a house a little over 2 years ago hoping to make a quick buck before moving back (or away) from civilization. The career thing has gone well. I'm close to 6 figs and the mortgage is only 25% of net income. Other debts are fairly low.

However, I appear to have picked the wrong place to do so. I'm in the #1 worst hit houseing market in the US. My house has dropped 60k in value. And even that is artificial. The house across the street from me would be an 85k loss. Except its 500 sq feet bigger than mine.....

I'm stuck. I absolutely hate where I'm living. My wife and my mountain bike are the only things keeping me going. Both of us want out but can't move because of the house. We've gone over all kinds of plans, but nothing seems feasable. If we rented the place out we'd take a $700 a month loss at minimum. If we sold we'd had a 60-90k debt over our heads. We are desperate enough that we've talked about just walking away and moving to europe. (She is an EU citizen and I could easily get a visa because of my specialized work)

With all of that understood, would it be feasable for me to quit my job and go bankrupt to get out of the house? I don't care about material things, I'd gladly trade everything I own for pine trees and quiet. I can always make money, I'm a specialized IT guy. I don't mind driving a crappy car for the next 10 years. In fact I haven't owned a car for the last 3+, just a used motorcycle. I'd love to never use credit again, never should have used it in the first place.

Would this be the best course of action for me? Or is there some other way I might be missing?

[JRScott]

Have you considered a short sale or discussed such with a realtor and your lender?

[keepmine]

Check your state law. In some states, a lender can't sue for a deficiency balance.

[big_slacker]

Check your state law. In some states, a lender can't sue for a deficiency balance.

No go on that. The lender has 3 months to sue for deficiency balance in case of a foreclosure.

As for a true short sale, the lender would take a look at my debt to income and laugh at me. Unless you mean first quitting my job and calling up to request the short sale? And they could still deny it leaving me with foreclosure and a 60-90k bill.

[keepmine]

The lender has 3 months to sue for deficiency balance in case of a foreclosure

If that's the case, wait 'em out and see what happens.
The bk card is always available if they choose to sue.

[breezyday]

First the background:

I'm an outdoor type who moved to to the big city for career advancement. I bought a house a little over 2 years ago hoping to make a quick buck before moving back (or away) from civilization. The career thing has gone well. I'm close to 6 figs and the mortgage is only 25% of net income. Other debts are fairly low.

However, I appear to have picked the wrong place to do so. I'm in the #1 worst hit houseing market in the US. My house has dropped 60k in value. And even that is artificial. The house across the street from me would be an 85k loss. Except its 500 sq feet bigger than mine.....

I'm stuck. I absolutely hate where I'm living. My wife and my mountain bike are the only things keeping me going. Both of us want out but can't move because of the house. We've gone over all kinds of plans, but nothing seems feasable. If we rented the place out we'd take a $700 a month loss at minimum. If we sold we'd had a 60-90k debt over our heads. We are desperate enough that we've talked about just walking away and moving to europe. (She is an EU citizen and I could easily get a visa because of my specialized work)

With all of that understood, would it be feasable for me to quit my job and go bankrupt to get out of the house? I don't care about material things, I'd gladly trade everything I own for pine trees and quiet. I can always make money, I'm a specialized IT guy. I don't mind driving a crappy car for the next 10 years. In fact I haven't owned a car for the last 3+, just a used motorcycle. I'd love to never use credit again, never should have used it in the first place.

Would this be the best course of action for me? Or is there some other way I might be missing?

Boy do I have a home you would love! CHEAP!
Sits in the woods > private! I have even have pasture for a horse.

Sounds like where all in the boat! Houses worth less then what we owe, need to move for one reason or the other!
Can't sell our homes!
All we need is a buyer! We have a great place but no takers!
My husband lost his great paying job, took another job and hurt his back!
Where not behind on payment yet but boy are we thinking about just walking away!

[Help!]

With that income, it would be difficult to qualify for Ch. 7 now... especially since you don't have much unsecured debt (you probably already know this). After foreclosure and sale of the house at auction, the deficiency (if the lender sues you) would be an unsecured debt.

Since your ability to qualify for Ch. 7 depends on how low the ratio of your disposable income to your unsecured debt total, a smaller income and larger unsecured debt total are advantageous on the means test (good job, Congress).

[big_slacker]

Right, and the means test uses income over the last 6 months so the 'strategy' would have be to both quit my job and stop paying on the house. Its taking 6 months or so for foreclosure to start in the area right now. So we'd be basically waiting for a knock on the door to kick us out. Then scramble for a place to live while the foreclosure runs its course and we wait for any deficiency suit. Then filing BK and waiting on those proceedings. Could be over a year of ugliness....

Helps to talk this through so I have it straight in my head exactly what I'm considering.

[keepmine]

Right, and the means test uses income over the last 6 months so the 'strategy' would have be to both quit my job and stop paying on the house. Its taking 6 months or so for foreclosure to start in the area right now. So we'd be basically waiting for a knock on the door to kick us out. Then scramble for a place to live while the foreclosure runs its course and we wait for any deficiency suit. Then filing BK and waiting on those proceedings. Could be over a year of ugliness....

Helps to talk this through so I have it straight in my head exactly what I'm considering.

It could also mean avoiding having to file a bk.
While a deficency suit is possible, it may not be likely. Lawsuits are an expensive and no very efficent way to collect a high dollar account. They know bk is a very likely outcome should they sue so, why waste more time and money on legal fees if there is nothing to get. I'd try and tough it out.

[AngelinaCatHub]

[Cali]

I think it would also be hard to do C7 because of not having much unsecured debt. I don't think the income would be a problem though, we are at 6 figs and filed.

[BnkrptcyLwyr]

If you don't care about your credit taking a hit, quit paying, let them foreclose. The only thing that you need to have concern over is a deficiency judgment. If they seek and get a deficiency judgment, and actually get it and try to collect,then file for bankruptcy and depending on your situation, you may pay that back anywhere from 0-100%. It all depends on your disposable income as to what percentage they'll get paid. Bankruptcy or foreclosure? As far as your credit, what does it matter which one? Not a lot of difference.

Here's the thing, if they foreclose, make sure you know what they bid at the sale. If the bank pays what's owed on the note, then there should be no deficiency (in Michigan the case law is crystal clear on this point). Even if later they sell the property for less, (in Michigan) they're bound by the bid price at the time of the sheriff's sale.

[big_slacker]

A trade might not be a bad thing. I would gladly work out something with a person who wanted to move here. In fact I talked with a friend about doing just that. Swapping houses and continuing to pay our respective mortgages since neither of use could re-fi. My wife didn't like the locale (outskirts of carson city) but the concept might be a good one if I can find someone to do it with.

As for the job thing, I'm not worried at all about giving it up and getting a new one later. As an example there was a management change at one place I was working at and I felt I couldn't do my job well there. I called a recruiter and less than a month later I had a new job. That one ended up being worse than the one I left but it was contract work. I didn't look for my current job, just got a call from a contact. He asked "What do I need to do to get you started?" That is just how it is right now. There is a lack of skilled and experienced people in my field.

I appreciate everyone's advice. I think the no job thing is out. I'll decide between toughing it out and perhaps the tactical foreclosure.

[Faithfullymovin]

bnkrptcylwyr:

I have a house in Michigan that I have just walked away from. I am going to try and see if my lender will do a deed in lieu but if not they can foreclose. If I understand you correctly in Michigan if the lender sales the house at the sheriff's sale this is the price that they are bound by. So I have heard that a lender will often by the house themselves at the auction for the price that is owed and then try and sell it. So if my lender goes this route I will not have a deficiency ? How do I find the sale price at the sherrif's sale?

Thanks for all the info.

[No Gravy]

. My wife didn't like the locale (outskirts of carson city) but the concept might be a good one if I can find someone to do it with.

Now see, from what you said in your original post (about being in the area hardest hit), I would have guessed you were in California like me

I can really relate to you, albeit from a different angle. Since 2005 the plan has been to fix up my house (I've been here for 11 years, never considered selling it) , sell it and take the equity (when there WAS equity!) and pay cash for a little cabin in the Sierra Nevada mountains. The longer I stay here, the more I hate it. I can work from almost anywhere, so that's not a concern.

Life changed, however, between then and now. And here I am.

I agree with Hub...don't quite your job just to be able to qualify for chapter 7. What I would do is talk with a few local attorneys, lay it all out see what they say about where you stand.

And while this advice might not be "popular"...that idea of walking away and moving to Europe...may sound horribly to some, but I think it sounds cool. It also sounded like that's what *you* really want to do.

So...not trying to sound like your mom here, but...what DO you *want* to do? If you're prepared to accept the consequences of your actions and your wife is onboard with it...why not?

Think about what you really want to do, how you really want to live, and go for it. Every choice has a price, but you also only live once.