Want to understand all my options

[onthebrink]

[forgotten]

In my opinion, you aren't going to be able to keep that house.

You have a $4500 mortgage payment (that does not include taxes and insurance), and you are currently bringing home $2k/mo + unemployment.

Why did you have to close the business last September? In the current economy are you confident when you restart your business you are going to have at least $4500 after taxes left over each month for yourself to spend on personal bills? (I assume you will need at least $2000/mo over your mortgage for bills, even without the credit cards).

Keep in mind that if you stop paying any of your credit cards your interest rate will go to 28-35% default APR. Late notations from all your credit cards and your mortgage is going to ruin any chances of you getting a personally guarenteed loan for your business so you are not saving your credit by doing that and not filing BK.

[onthebrink]

Forgotten, thank you for the reply.

Regarding the home, we are going to attempt to obtain a loan modification and/or negotiate a forbearance with the banks. In the worst case, depending on advice from an attorney, the loan modification agency, the credit counseling agency and what we learn hear, we will use our savings to pay part or all of our mortgage payments over the next three months.

We had to close the company because of the economy. The circumstances around re-starting the business are significantly better than they were in September. And, yes, the income generated will be sufficient to cover our personal expenses starting in May and through August or September. At that point, we will have hopefully picked up additional projects. Given this, I do see the opportunity to keep our home, particularly if we can workout a loan modification.

Regarding deferring payment on the credit cards, will it still show as late payment if we are using the credit card protection program?

[DebtStinks]

Wow... it's going to be rough to dig out of this without a BK man.

Would help to know what state you are in for exemptions.

Regarding the business... are you the primary developer on the project? I mean without you does the project really have any value? Unless you are there to support and continue development on the project I doubt it has much value. I just can't see them taking interest in a business that had to shut down with 30k in debt.

My wife and I are 38 and we just went though this. I had to close my business and we weren't making it on her salary alone. Our unsecured debt and an underwater house was killing us. We filed for a Chapter 7 and discharged everything including the house. We are now debt free and have been living rent free for 13 months while we wait on the bank to foreclose. We just roll our old mortgage payment into savings each month. I'm trying to get things rolling again with my business and things haven't looked better for us in a LONG time. We plan to buy a much smaller house as soon as we can and get it paid off quickly (~5 years a most). We have learned a lot though this experience and plan to make sure we don't let it happen again.

The brutal truth from where I sit (which is just my opinion) is your only real solution is to let the house go and file for bankruptcy (chapter 7). Now if you closed your business last Sept. and haven't seen much income you shouldn't have much trouble at all qualifying for a chapter 7 since its based on your last 6 months income average. Even if you are above the median you should pass the means test with your huge secured debt payments (this also depends on your location).

The main concerns are the 20k savings and 20k stocks... if you are in CA and you don't need to protect equity in a home you get a wild card exemption of just under $22k that can be used to protect any assets. Items in your house that have a garage sale value of under ~$500 are also all exempt in CA. In CA you can only protect $3,300 of equity in your cars as well. So anything about that would have to be paid or covered by the wild card. You'd have to sit down and really look at your assets. The 100k in retirement can't be touched.

Your a businessman... sit down and run the numbers. What is your best case situation on income over the next year or two. Does it even come close to digging you out of this hole? How does your retirement look 10-15 years from now? Odds are you'll still be trying to scratch your way out of a bottomless hole of debt.

Now run the numbers on a chapter 7... house included. You'll prob lose some assets that you can't exempt. But live in your house rent free until the bank gets around to foreclosing and just keep putting cash into savings. Downsize into a home that you can afford today. Instead having to spend all your time trying to figure out how to pay your bills you could put your energy into getting your business back up and running. No debt, house payments that you can afford, business picking back up, savings account growing. Now how does it look in 10-15 years when your thinking about retirement.

Before we filed for bankruptcy I hardly wanted to get out of bed in the morning. But now I wake up looking forward to my day and my future. It was the best decision we have ever made and things are looking great for us. You just have to sit down and take an honest look at where you are at and what it will take to make it right. I wish you the best.

[onthebrink]

DebtStinks, thanks for taking the time to give me your input. You make some extremely valid points. We live in CA, BTW and regarding the business I will have other developers but it would be difficult to run the business without me.

The picture you paint sounds pretty enticing. If we can qualify for Chapter 7, that does seem like a very good option. I had a consulting project that ended in November that paid pretty well, so may not be able to pass the means test - that's my concern (planning on seeing an attorney to understand this option).

You're right - I need to take a look at the longer-term picture. We love where we live but that doesn't mean we can't love living somewhere else, especially if we are out of debt and leading a less complex life. How long were you able to live rent free in your home? The notion of being able to save the money from not having to pay mortgage is very appealing.

[DebtStinks]

These boards were an incredible help to me... my join date was Feb 2009 and I see that yours is Feb 2010. It's hard to believe that I was exactly where you are just a year ago. Sure everyone's situation is a bit different... you might have a bigger house or a nicer car but it's all relative. The feelings are the same when you are living paycheck to paycheck and finally come to the realization that you have dug yourself into a hole that you don't know how to get out. These forums where priceless to me in getting though a dark time in my life and I still try to check back often and contribute to this community.

We love where we live but that doesn't mean we can't love living somewhere else, especially if we are out of debt and leading a less complex life.

Ding ding ding! We have a winner! That pretty much hits the nail on the head. Just keep that statement in mind as you work though this nightmare.

This how it worked out for us... can't say it will be the same for you. Our first is though BofA and the second is another bank. We are also over 50% underwater so that might play into it as well. You might try to get an appraisal on your house to get an idea of exactly where you stand. Anyway, we stopped paying everything in Feb 2009. We filed for bankruptcy in June 2009 and got our discharge in late Sept. BofA did not file for a relief of stay during our bankruptcy and they haven't even filed a Notice of Default yet (which starts your foreclosure timeline). So I guess we are 12 months rent free as of now... once we receive the NOD there is a 3 month redemption period and nothing really happens during this time. It's just a chance for you to cure the loan and make thing right. Once the 3 months is up they have to set a trustee sale date... which can't be sooner than 21 days (often will take much longer). But once the house goes up for auction and is sold the title will transfer back to the lender. At this point you will get a 3 day Notice to Vacate posted on the house if it owner occupied. There will typically be a number to call and this is when some banks will offer you a "cash for keys" deal. This is a deal to leave the house in "broom clean" condition and move out within an agreed upon timeframe. This is done to avoid having to proceed with an eviction and ensures that the house won't destroyed on your way out (people are doing crazy things to their homes as they leave).

[onthebrink]

DebtStinks, thanks again for taking the time to share your experience. This is very generous on your part and it is comforting to know that I am not alone and there are options.

The first option I am currently investigating is to see if we can get a loan modification. I know of cases loan modification companies that have been able negotiate to have the bank reduce the balance and the interest rate on the first, and significantly reduce balance on the second down to about 30% of the current balance. We are about 25% underwater. So if we could get a deal where we could get our mortgage payment roughly down to what we would pay for rent and still keep our place, then this would be ideal. I am trying to get an appointment with the loan remodification company. Did you look into loan remodification?

We are also going to speak with a BK attorney - I have identified a number of them (we're in the SF Bay Area) to understand our options. Chapter 13 is not appealing but Chapter 7 is, so we need to see if we could qualify for Chapter 7. What are your thoughts on Chapter 13? The idea of being on an extremely strict budget for 5 years and having to pay any additional income that I might earn over that period beyond the budget means essentially that we can't save any money for retirement for 5 years, which doesn't help me. I'd be 57 at the time and the idea of being 57 with only $100K in retirement is unfathomable.

The good news (and I am trying to keep a positive attitude as I go through this process) is that there are options and it is comforting to hear that there is a life after. Thank you again for sharing your experience.

[DebtStinks]

No problem at all and there is life after bankruptcy!

Chapter 13 is really only good if you have significant assets that you can't lose. Not simple things like a nice car or toys... I'd give up 10 nice cars to be where we are today compared to where we were before the bankruptcy. Even if you have to give a little to get though this... the rewards will be far greater in the long run. BUT... if your parents have deeded a property to you that has been passed though the family over the years and you can't lose it... then a chapter 13 is really the only way to go.

Loan mods are hit and miss... we talked to an attorney that specialized in loan mods and we almost pulled the trigger on paying him and trying for something. But the more research I did it just made sense to walk away from our place. We are in the central valley and are well over 50% underwater on our home which we bought in 2005. Lowering the interest rates and extending the mortgage out to 40 years is what you'll often see. But all that really does it lower the payment on a home that might take 20+ years to break even on. Beyond that you can shoot for a principle reduction (which is what the loan mod attorneys like to sell you on). But they are rare as hell... the banks just don't seem to be interested in doing principle reductions and would rather just foreclose on the property. Yet, some people are able to get them... but they almost always come with a catch! If you ever sell your place for a profit the lender gets back whatever amount they reduced your principle by. Again, not a very good investment. For us the only thing that made sense was to walk away.

You kind of need to look at your home the same way you are looking at the Chapter 13. Lets say you can negotiate down your second to to 30% and you can mod your first and get a great interest rate of 3% (principle reduction on your first isn't likely). They might even bump it to 40 years. All if this might reduce your payment by $1,000 a month. Which in your current condition is probably still too much... and you should really be looking in terms of what you can afford to pay off in 15 years (retirement time). Which even with the mods above you would need to be paying close to $7,000 a month to have your loan paid off in 15 years.

You really need to just sit down and make a 15 year plan... where do you want to be in 15 years and see if your current home fits in that equation.

[onthebrink]

DebtStinks - thank you so much. You have really opened my eyes! I just went with a buddy, who is in the same exact situation that I am in, to check out another neighborhood that is in a city adjacent to SF. My wife and I could rent a 3br 2ba in a nice neighborhood for $2K to $2.5K per month. We live in a 2br 1ba in an incredible neighborhood but the harsh reality is that we can no longer afford to live here and I'm OK with that and I know my wife will be as well. You are absolutely right that I need to look at this from a 15-year perspective. The other key point is that right now I don't really "own" my home anyway. We're better off getting into a situation where we pay less for housing and saving some money and maybe even go on a vacation. Right now I feel guilty if we go out to eat and spend more than $30 for a dinner. That's no way to live. We are prisoners to our home. Maybe it's time for a change!

I am going to make some calls and make appointments to see a few attorneys to get some advice and make a decision.

Thank you again and glad to hear of a success story.

[DebtStinks]

Glad to help... I wish you and your wife the best. Just drop me a line if you have any questions. I've pretty much spent the last year researching bankruptcy and foreclosure here in California. Happy to help anyway I can.

BTW, if you are going to be over the median income the bankruptcy means test will play a huge role in your ability to file for a chapter 7. I wrote a simple wizard that will step you though the process of the means test. I used it a lot while trying out different scenarios in regards to our bankruptcy. The IRS data is a bit out of date but it's still very close to the current numbers. You can check it out here:

http://www.johnfire.com/meanstest/wizard.php

Best of luck to you!

[onthebrink]

Thank you, DebtStinks! Will keep you posted. I just called an attorney and left a message and am going to call a couple of others.

All the best to you!

[onthebrink]

So I met with a loan modification specialist and a BK attorney this week. The loan mod outfit said they should be able to get us a loan mod that would reduce our monthly payment by anywhere from $1400 to $2400 per month. The $2400 monthly savings would be based on an interest-only + taxes + insurance payment; the $1400 savings would be if we included principal. We are about 5% underwater relative to the first and about 17% if we include the HELOC. We believe that home prices will stabilize and possibly go up in our area. This would be a good deal for us because a monthly rental in this area would be roughly the same amount as the reduced mortgage payment and we wouldn't get any tax benefits if we rented.

Assuming we could get the loan modification, we would then file BK to try to get out of the CC debt and the HELOC. The loan mod guy was going to call the bank by Monday. My wife and I are meeting with the BK attorney this week to get advice on WHEN we should file. I do not want to file Ch 13 because I don't like the idea of having any earnings over whatever budget would be agreed to as part of the Ch 13 having to go to the creditors. What is clear is that we will definitely file for BK, ideally for Ch. 7.

I'm having a tough time dealing with the possibility of losing our home but will not have a choice if we can't get the loan mod. If we get the loan mod then it's a wash in terms of renting versus staying. If we don't get the loan mod, then we would look to rent. The possibility of living rent-free for 12 months if we discharge as part of Ch 7 is very appealing.