Developing BK Stratetgy or WWYD

[blueradar]

Family of 4 in MD

INCOME:
$77k/year one earner (below means test)

Secured Debt:
$230,000 1st mtg VA @ 5.5% with WF ($1750/mo. PITI) current
$50,000 2nd mtg @ 11.75% with CITI ($550/mo.) 60 days
$12,500 vehicle @ 8% with Cap1 ($400/mo.)

home value ~ $210,000 on the high end

Unsecured:
$90,000 (all defaulted)

Student Loan:
$60,000

I've been lurking for a while. Seems like a Ch13 with a lien strip would be the best option. What do you think?

Should I be concerned about the 2nd being late? They won't foreclose nor would they buy the 1st.

[keepmine]

If, you can comfortably handle the 1st mortgage payment and really want to keep the house then, I'd lean towards a 13.
You live in an area with a high cost of living and a rental will likely be near the same monthly payment as the mortgage.
On the flip side-what is the home realistically worth with all the sales expenses factored in? If it's under $200K-I'd walk. File a 7 and start all over. No need throwing money at something that is $30K or $40K or more underwater.

Most bk lawyers give a free of lowcost initial consultation. Speak with 2 or 3 and see what they suggest.

[SMinGA]

If you have sufficient DMI (without having to pay the 2nd) & you're under median income, should be able to do a 36 month ch. 13. That would still leave you slightly upside down on the home, but closer than you are now.

In most districts - student loans are treated as standard unsecured in a ch 13, deferring regular payments (but not interest) til after the plan.

If you expect to ultimately file ch. 13, paying on the 2nd would be wasteful.

[blueradar]

On the flip side-what is the home realistically worth with all the sales expenses factored in? If it's under $200K-I'd walk. File a 7 and start all over. No need throwing money at something that is $30K or $40K or more underwater.

That was an option that has crossed my mind but I'm really not clear on the whole deficiency and bankruptcy issue.

[blueradar]

If, you can comfortably handle the 1st mortgage payment and really want to keep the house then, I'd lean towards a 13.
You live in an area with a high cost of living and a rental will likely be near the same monthly payment as the mortgage.

That's definitely the case. Renting in this area would cost about the same as the 1st mtg if not more. Gotta live somewhere. Might as well be here. I guess I could take a job in another part of the country where living expenses aren't so much.

[LadyInTheRed]

That's definitely the case. Renting in this area would cost about the same as the 1st mtg if not more. Gotta live somewhere. Might as well be here. I guess I could take a job in another part of the country where living expenses aren't so much.

Many would tell me I should walk from my house because it is so underwater (1st mortgage $288k, 2nd mortgage $88k, value $205k). But, I couldn't rent anything equivalent for less, especially when you include income tax deductions for interest and property tax. I couldn't see moving to an apartment with no yard which is the only way to lower our housing expense, and the savings would not be enough to allow us to save for a down payment for a new home while still saving for retirement. My husband and I live with 3 cats in a small (845 sq. ft.) 2 bedroom house with a nice sized yard and good neighbors. We are in our 40s and won't be having children. While some say it needs to be purely a business decision, I believe quality of life does need to have some weight. We love our cute little 1923 bungalow with the roses out front and fig tree, apple tree and garden in back! We have no plans to ever move, so the fact that it will take years to have any equity doesn't really matter. Without the 2nd mortgage and CC bills, we can easily pay the first mortgage and will have it paid off before I retire. We rely only on my income and I have a very secure job. But even in the unlikely event I lose it, I'm in a major metropolitan area where I can find work and have many contacts in my field who think very highly of me. While my husband isn't very employable for reasons I won't go into, he could bring in some income if necessary.

I am over median, but may have been able to get into a Chap. 7 and negotiated with the 2nd later. But, I decided I'd rather strip the 2nd and deal with a 5 year payment plan. If my plan gets approved (341 is tomorrow), I will have replaced $900 in CC and 2nd mortgage payments with a $500 payment to the trustee that includes payments on my new car. If we later decide we don't want to keep the house, we can still walk away at any time! The one reason I can see doing that is if I inherit enough from either of my parents to put together a down payment on a house I could buy at market value. But, I hope they live long enough to spend all their money and then need to mortgage their homes and spend all that money too!

Everyone needs to make this decision based on his or her individual circumstances and life plans. I hope the explanation of my thought process in making my decision helps to give you some things to think about when making yours.

[blueradar]

Thank LTIR. Your situation sounds similar to mine. You were able to put your car payment into your repayment plan? I was under the impression that only unsecured debts went in there. In my situation a $500 payment would allow me to keep the car and essentially get out of $140k of debt for $3600 ($100/mo x 36 mo). Seems to go to be true.
I guess I've got some more learning to do.

How is DMI calculated if you're under the median?

Do you relly get to choose between Ch. 13 and Ch. 7, or is there some formula that forces you either way?
Is there a minimum DMI before you are forced into a Ch. 7?

I know an attorney is best to answer so questions, but I want to make sure I understand the answers and make sure my best interests are protected not his. Cynical or responsible? A little of both I guess.

Thanks for all the responses.

[SMinGA]

DMI is calculated the same, over median or under. Net income less expenses. You would not count expenses that won't continue after filing. Under median means less difficulty filing ch. 7 if one has limited DMI, and opens the option of a 36 mo term for ch. 13.

If your car is to be included in your plan and 2nd mortgage stripped (converted to unsecured) you would NOT count those payments on your schedule J. Student loan payments now would probably not count either, as those are usually deferred (not requiring you to pay directly) while in a plan - and get treated as standard unsecured, getting paid a little from your plan.

Take some time to consider what your true living expenses are - don't want to go into a plan thinking you can live on $400 groceries when its really $700. Think about all you need in a year, especially the less regular items. Car maintenance, home maintenance, clothing, etc.

Including a vehicle in the plan, in some districts, is not uncommon.

[LadyInTheRed]

The car is being paid inside the plan to make the trustee happy. I am paying so little to unsecured (less than 1%; the plan says "pro tanto"), that if my car weren't included in the plan, the trustee fee would be tiny.

I am over median and pass the means test to file a Chap 7, but am able to adjust my budget to below federal standards in some areas so I have DMI to fund a 60 month Chap 13 (i.e., pay the car, attorney fees and trustee fees; I have no mortgage arrears or priority debts). As SMinGA points out, if you do this, you must be careful to create a realistic budget that you can live with. Since your income is under median, that will be more difficult for you than it is for me.

I know an attorney is best to answer so questions, but I want to make sure I understand the answers and make sure my best interests are protected not his. Cynical or responsible? A little of both I guess.

Being educated will help you weed out good attorneys from bad. I consulted with one who told me things I knew weren't true. She checked on the issues and called me later to tell me I was right. I actually wouldn't call her a "bad" attorney. I really liked her, but she is relatively new and needs more experience before I'd trust her with a 13. If I hadn't already educated myself, I wouldn't have known to question her. Meet with at least 3 attorneys before you decide on one.

[blueradar]

While my husband isn't very employable for reasons I won't go into, he could bring in some income if necessary.

If he were to find work wouldn't all his income be considered DMI since you're "doing fine" without it? Or is the plan the plan and not revisited ever.

[LadyInTheRed]

If he were to find work wouldn't all his income be considered DMI since you're "doing fine" without it? Or is the plan the plan and not revisited ever.

I made the statement in the context of me losing my job. In that case, anything he could earn would only partly compensate for my lost earnings. I cannot imagine him ever being able to bring in a salary equal to mine. But, if he brought in income in addition to my current income, I would call my attorney and ask him whether we need to inform the trustee and amend the plan. I filed alone. So, I believe what would be important is whether my husband contributes his earnings to the household. He has hardly any retirement savings and mine isn't enough for even me. So, the plan is for him to contribute anything he makes to an IRA. We've only been married for 4 years and very little of my debt was incurred after marriage. He doesn't have much incentive to work if everything he makes goes to pay my pre-marriage debt.