Question Thinking about Bankruptcy...7 or 13?

[PJA]

My wife and I met with an attorney a few days ago to discuss bankruptcy and we are not sure which way to go. Here is our situation:

1st mortgage: $173,000 ($1200 per month)
2nd mortgage: $34,000 ($230 per month)

Home fair market value: $170,000

Our attorney says chapter 13 would allow us to elliminate our 2nd mortage due to market value?

1st auto loan: $9200 ($250 per month)
Market value: $3500...attorney says we can elliminate any amount owed over market value?

2nd auto loan: $6,000 ($250 per month)

Credit card debt: $26,000 ($520 per month)

College loans: $60,000

Net income: $4,642 per month + $600 per month (unemployment for wife)

Questions:
1. If we file chp 13, will we still have money for extra stuff...like an occational vacation with the family? taking the kids to the movies? etc.
2. What happens to our tax return each year on cpt 13? cpt 7?
3. How should we start preparing for filing? We plan to file in a few months...should we start putting cash away if possible?
4. How will this effect our credit...will we ever be able to get financed?
5. Which makes more sense for us...7 or 13?

[SMinGA]

Yes, a 13 can 'strip' a 2nd when your 1st balance is more than the value.
In a 13, you can 'cram down' an auto loan if its worth less than you owe AND you bought it at least 910 days (2 1/2 years) before filing. Each district has rules about what valuation method they use.

1. Yes & no. No to vacations, yes to a reasonable amount for entertainment.
2. Depends on your district. Many consider it extra income and require it paid into the plan. Some require refunds over $X go to the trustee - $X depends on the district.
3. Start by assessing your budget, think about the day to day & the occasional needs. Like I pay an ad valorem tax to renew my tags each year - come up with a monthly average. You want to go in with a realistic plan.
4. Your credit is already affected - by high balances and possibly overlimit/late pays. And refinance options, I'm guessing, are now hindered by high debt to income. As to whether or not you can refinance it really depends on your situation when you apply.
5. I can't answer that... If you have income remaining after necessary bills (not counting credit cards) & expenses then ch. 7 is probably not an option. If you are about even without the cards & you are eligible to cram down your vehicle then you do have a choice. (Taking the 2nd mortgage & 1st car payment = plan payment.)

[bkinparadise]

You will eventually be able to get financing after bk but at a higher interest rate. But why would you want to go down that road again? I can understand getting a home loan but it would be a number of years before the bk would drop off the credit reports in which time you would qualify for a more reasonable rate. Good luck on your decision in doing a bk.

[myid4u2c]

My opinion, if you qualify for a 7 you needs to do a 7.

First your home, 170K? Is this the net amount after sales commission? If not the amount it is worth to you is 160K. You are either 10K or 44K under water. You need to file a 7, not reaffirm the house. You can probably stay in the house for almost a year rent free before they foreclose.

With the money you save above you can buy two used cars and not have any car payments.

I have been there, getting credit after BK is a more costly but not impossible. Remember you do not need credit except to buy a home that is it. Spend less than you make and you will have savings to pay for the unexpected things that come up. Consumer debt it evil.

I filed a ch7, it was the best thing I did, and I got a fresh start and never looked back. Again, this is just my opinion and may not be shared by others or even be the best for your situation.

[PJA]

Ok...we are leaning toward a chpt 7...we are going to file in three months. Beginning in July, we are not going to pay any of our credit cards. We DO NOT want to lose our home...no forclosure...so we need to keep paying both loans on our home. Since we are upside-down on one of our cars, should we also stop paying on that and allow that to go in the BK? We can put money away over the next three months and plan to pay cash for a car to replace the one we lose right?

[SMinGA]

Talk to an attorney, or 3...

If you are certain to file then YES stop paying the credit cards. If you intend to give up one of the vehicles, then yes to stopping that payment as well.

Ch. 7 vs. ch. 13 may not be an option however. Assess your net income vs. net expenses/bills. (Not counting credit cards.) Is your net income more than expenses? Are your expenses reasonable for your family size?

[PJA]

Reply

Without our credit cards, yes, I think our bills would be affordable.