Met with lawyer even more nervous

[hughewil]

met with a lawyer today and didn't like what I heard.

My situation

1st mortgage 112k
2nd mortgage 50k
CC debt 20k

We can afford the 1st mortgage but not the second. I told the lawyer I wanted to get an appraisal and if it was less that the 1st mortgage I wanted to strip the second.

She said "what do you mean strip"

I said "lein strip the second would be unsecured if the value is less than the first, and I can have the 2nd stripped to unsecured debt right"

she said "not neccisarily, the second lean holder can contest it and you would have to go to court." Then she said something about it depends ihow you signed the loan.

I then explained what we do depends on the estimate. If my wife quits her job in august then when we file in november (6 month look back) we would be under the median and can file chapter 7, we will do this if the estimate is higher than what we owe and have to let the house go.

if the estimate is below our 1st we want to strip the second and keep the house in a 13.

she went on to then tell me that when doing the means test that 401k contributions will not count as an expense, she then said that the means test has to match schedule I & J and that the trustee in our area will reject it if it doesnt. That makes no sense to me how can he say they have to match, and 401k not being excepted? I'm not sure if the lawyer is just a bad lawyer, or if the trustee here is just that bad.

[momofthree]

Go see a different lawyer. This one obviously is not familiar with ch.13 or lien strips.

[HHM]

That lawyer is EXACTLY right about the 401K, you cannot deduct the contribution or loan repayment on the means test. However, in a chapter 13, you can budget the payments. However, in most districts, if the ONLY thing that would force you into a 13 is the lack of the 401K expense on the means test, you can still file a chapter 7.

Also, 2nd mortgage lenders are starting to contest the lien strip more often. Just because your appraiser says the house is worth X, doesn't mean the bank can't find one that says the house is worth Y. Then it will come down to who the court believes is better.

Generally, if you qualify for chapter 7, you are better off filing chapter 7, stopping payment on your 2nd mortgage, and then after your chapter 7 discharge, attempt to settle with the 2nd mortgage.

[hughewil]

That lawyer is EXACTLY right about the 401K, you cannot deduct the contribution or loan repayment on the means test. However, in a chapter 13, you can budget the payments. However, in most districts, if the ONLY thing that would force you into a 13 is the lack of the 401K expense on the means test, you can still file a chapter 7.

Also, 2nd mortgage lenders are starting to contest the lien strip more often. Just because your appraiser says the house is worth X, doesn't mean the bank can't find one that says the house is worth Y. Then it will come down to who the court believes is better.

Generally, if you qualify for chapter 7, you are better off filing chapter 7, stopping payment on your 2nd mortgage, and then after your chapter 7 discharge, attempt to settle with the 2nd mortgage.

well i am not to worried about the 401k keeping us frpm chapter 7 if need be. we are $30 a month over the median and -500 on means test. My 401k deposit is only $50/month.

My wife works part yime and earnhs $500/month, if she quits in august then on a 6 month look back we would fall under the median. Plus the lawyer said a new median should be provided soon (last one was january) and if it increases we may fall under median even if my wife doesnt quit.

I am curious about what you said about chapter 7 above. you said after chapter 7 discharge settle the 2nd. I thought both mortgage debts would be discharged if I do a 7? If I do a 7 I have to give up the house right? if i give up the house and declare BK do I still owe the second mortgage?

[HHM]

See this post that explains the strategy.

http://askmethner.com/high-risk-strategy-emerging-for-dealing-with-2nd-mortgages/

[hughewil]

That sounds risky, what if the 2nd won't settle, then your screwed.

[newbie2]

That sounds risky, what if the 2nd won't settle, then your screwed.

You said in your first post that you cannot afford the 2nd mortgage. If you can't, then you're screwed regardless..(your word "screwed", I'm not slamming you :-)

What have you got to lose by trying this strategy? Nothing as far as I can see. You can't afford the 2nd.

[momofthree]

With your 2nd mortgage being the majority of your debt, I understand wanting to go the ch.13 route to guarantee that the 2nd goes away, especially if the value is close.

I think a lot of the people who are successfully settling are so far underwater on their house that the 2nd has no chance of getting their money for years and years, whereas if your first is close to the value, the 2nd may end up with security in just another year or 2, making them less likely to settle, and more likely to foreclose...

We chose ch.13 for that reason. Within 2 years of regular payments, our first mortgage will be below the house's value (as long as values don't plummet again) and our 2nd will have security interest once again. On top of that they have already refused to settle with us, so we went the ch.13 route to be rid of them forever.

[hughewil]

I am going to wait for the appraisal to get abetter idea of what I want to do. If it is 15-20k less than the 1st I might try and save the house, although last night my wife seemed to be agreeable to the idea of just letting it go and start over if we are in 7 rather than doing payments in a 13.

I have a lot more questions for some advice but I really just have to wait for the appraisal.

One thing I will ask

Right now with my wife working we are barley over the monthly median (less than $100) but negative on our means test by $300/month. Can you still declare 7 if you are slightly over the median but are negative on the means test?

[newbie2]

One thing I will ask

Right now with my wife working we are barley over the monthly median (less than $100) but negative on our means test by $300/month. Can you still declare 7 if you are slightly over the median but are negative on the means test?

You can, but make sure you are not using the 2nd mortgage payment in the future looking payments / expenses.

Edit: Now that I think about it, I recall a couple of other posters who didn't reaffirm their mortgages, had their 1st and 2nds included as part of their expenses, and then walked away from their homes after the bk discharge.

I don't know how this is viewed by the trustees in your area, so make sure you ask about this.