Help!

[bleakhouse]

Hey folks,
I'm new to the forum and feel relieved to find a place where I can get advice from other folks who have been in similar situations.

Okay, here is mine:
I bought two rental houses in California during the boom while I was living in another state. I lost both homes to foreclosure. I had firsts and seconds on both homes.

I was sued in California by a law firm representing a collection agency for the second mortgage on the first home. The original loan amount was 50K and I was sued for 65k, which included interest and lawyer fees. I'm assuming it won't be too long before they get the California judgment validated in Illinois where I now live.

I haven't been contacted by a collection agency for the second mortgage on the second house. But the amount of this second mortgage is 100k.

So, I'm at least 165k in debt.

I'm trying to figure out whether debt settlement is possible (and better) or should I go straight for 13. I do not qualify for a 7.

I've used the values on the IRS website for the national and local standards and come up with a disposable income of roughly 1400 per month. Does anyone know if I should calculate these values for 1 or 2 people if I have joint custody of my kid?

I'm really down right now about this whole thing; any advice people might have will be greatly appreciated.

[justbroke]

Beware of the dreaded 1099-C Cancellation of Debt. You are probably liable for taxes on any canceled debt since those properties were not your primary residence and are not covered under the foreclosure laws in place. Yes, settling would make you pay a good chunk of money in taxes.

First, you should determine whether the non-recourse PMSI status works in California for investment property. If your first and second were used to purchase the property, it may be non-recourse and that debt collector may be barking up the wrong tree. Just thinking out loud.

Otherwise, bankruptcy may be the best way to deal with this.

[bleakhouse]

Thanks justbroke for your advice. I spent all day on the forum and see that you're pretty active and have great comments!

Unfortunately, I do not think that non-recourse applies in California for investment properties. It seems like they'll come after me.

I'll probably go 13 as doing a debt settlement would incur a large 1099-C. In fact, the lower the amount paid to the debt collectors, the larger my tax liability would be.