To go CH.7 or negotiate debt? Credit rating?

[4Abetterlife]

Hello and thanks to all for this informative forum. I have some questions regarding the decision to try and negotiate our credit card debt or joint file for chapter 7 for which we qualify. My wife and I are in MA and the state has a Homestead Act (we have filed this already), which exempts up to $ 500K in equity. We own our own home and have approximate equity of about 200K-300K after 1st and 2nd mortgages. We plan on putting our house up for sale in the Spring and moving to CT. Our sole debt is credit card debt in the $ 160K range. We have stopped paying most of our cards now for about 90 days and have not answered any of the many phone calls we have been getting. My wife is recently unemployed and I am self-employed. When we move to CT I will be starting up new business and my wife will either help me or seek employment. We would like to purchase a small house (250K-275K) in CT but are concerned with our ability to get a mortgage if we go chapter 7. With our goals in mind we are weighing out whether reaching a negotiated settlement on our credit card rather than chapter 7 would provide us with a significantly better credit standing for getting a mortgage. Additionally we were wondering if we had gone bankrupt, how would putting a large (25-35%) down payment on a new home effect our ability to get a mortgage. This last question may need the advice more of a bank/mortgage broker rather than a bankruptcy expert but I know there are a lot of knowledgeable contributors here. I hope my questions are clear. Any advice would be great. Thanks

[kornellred]

You are basically asking if you can have your cake and eat it, too, if I read your post correctly. The answer is no. If you have unmanageable debt, Chapter 7 (if you qualify) is the only way to go. Negotiating with creditors is rarely worth the effort. If you go Chapter 7, you will be required to relinquish all of your non-exampt assets and you will not have money for a down-payment on a house even if you could get a mortgage. You cannot possibly qualify for Chapter 7 if it will be possible for you to scare up a large down payment on a house so close in time to the Chapter 7 discharge.
Chapter 7 is strictly start-from-scratch. Besides - if you sell your house in MA you will have enough money to payoff your unsecured debt in it's entirety. You cannot use bankruptcy to gain any sort of advantage.

[poorold]

if he can exempt all the equity in his home then if he files bankruptcy and qualifies for a chapter 7 and reaffirms his mortgage...when everything is discharged and closed, he will still have his home and all the equity in it.

then he can sell the home and keep all the money.

sounds like a good plan to me.

[HHM]

Any thing short of paying your creditors the regular monthly payment kills your credit. Debt Settlement, chapter 7 BK...EQUALLY BAD. So the real question is, how do you get out of debt as cheaply as possible.

[4Abetterlife]

Thanks for all the responses. I have an idea now about credit standing under the differing strategies. It sounds like according to HHM, bad is bad. I think ch7 is the cheapest way for us to get out of debt.

Poorold, you mention about reaffirming my mortgage. I am not familiar with this term in this context. Can you explain what that is? Some background regarding our mortgage(s) (1st and HELOC), we are current on both with no recorded late payments and it is our hope to stay in that status throughout the ch 7 process. Thanks for any additional information/advise you can provide regarding this.

[4Abetterlife]

Disregard my last "reaffirm" questions. I now have those answered. Thanks