Chapter 13 or try to somehow find a way to get into a 7??

[curiousbk]

here is my situation.

live in CA
married. 3 kids.
earn $140,000 / year.
wife does not work / stay at home mom
OWE - $385k on house. house value is $250k. (315 first / 70 second)
Credit Card dept = $70,000
Student loan - 120,000. yes.. 120k. pay $1000/month.. will pay next 20+ years
House payment is $2200 /month. that includes ALL taxes, ins. (we did a mod a year ago
Two cars. 550/month, 450/month. both are in middle of repaymenet period.. one is on year 3/5 on is on year 2/5. each car is worth about what we ow. owe 25k on one, 20k on other.

no othe rmajor expenses. / secured debts.
i have a large pension account, but was told tha tis exempt.

i pay about 1000-1200 /month for health insurance.
75/month life ins
i could go into the various othe rexpenses I have...

first lawyer I saw said I don't make a chaprter 7. I am way over the emdian income in so cal county I live in. and after doing the means test for chapter 7, it said I had about 1000/month in disposable income.

second lawyer never ran any means test.. wanted me to pay $1000 up front retainer to run all the numbers. s eemed $$ to me.. but he was highly recommendedd at a big firm.

both lawyers said they thought 13 was better and with a 13 i could strip the second mortgage off my house. that would be great. instead of being infinitely upside down, I woudl only own my 315 first, and my hosue woudl ber slightly upside down.. in next 5-10 years, i might be positive in house?

huge downside I saw to the 13 was that it woudl lump the sallie mae student loan into the "plan"... but since the plan would only pay a portion to each creditor. and b/c the student loan is not dischargeable..sallie mae would just roll hte unpaid interst back into my loan.. and in 5 years.. after I pay.. say about $60k to pay off the CC and strip the second - I would wind up having my studen loan up to 150k....

i don't know how good of a deal that is. i'd lose $70k off my house..but m hosue woudl still be upside down..and that debt is non recourse. if I walked in a few years, they come after me for any of it..

my studen loan will be with m e forever.. so i'd be eating 30k in more debt that i can't shake...

i don't knwo what to do. i'm in a sitatuion where with my house payment, car payments, minimum credit card payments, studen loan payment..and the other necessities..i'm basically treading water. i have NO money left over to actually reduce the debt.. i'm just slowly going negative usually each month because something hapens and bills exceed income.. and next year I am slated for a 10% pay cut..which willm ean I will make even lessm oney..

what would you do? help.

[helpmeout]

What is your goal in regards to your house? What is your first mortgage payment? 2nd mortgage payment? In a Chapter 13, if there isn't enough equity to cover the 2nd mortgage it can be stripped and discharged at the end of each year.

The reason why you are being told that you have $1K a month to fund a Chapter 13 is because the student loan isn't counted as an expens as that will go into forbearance (or whatever term it is called) until the Chapter 13 is over. Personally, I would dump the cars and get cheaper ones. Or at least get rid of the one the higher payment. With a student loan payment that high, you are going to have to have a whole lot of other allowable expenses to make up for it to get into a Chapter 7. Find other lawyers to consult.

[BKAttyMI]

I don't see how you could get yourself into a Chapter 7 unless you lost your job, but I don't practice in CA. Sounds like a 13 will be the way to go, you could strip a mortgage, pay off your vehicles and get rid of your credit card debt. Student loans stink, I have about 83k left to go on my own.

[espo1357]

I don't see how you could get yourself into a Chapter 7 unless you lost your job, but I don't practice in CA. Sounds like a 13 will be the way to go, you could strip a mortgage, pay off your vehicles and get rid of your credit card debt. Student loans stink, I have about 83k left to go on my own.

BKattyMI, what is your strategy on paying those back?

I have a 4% interest on about 50k, so I pay the min because the interest rate is so low.

Just curious how smart people handle these situations.

[screentest]

Curiouse,

My numbers were similar to yours and I was 50k over median in my SoCal county as well so I understand where you are coming from. First, I would run my own means test and account for ALL expenses allowed to get a clear picture of what your dealing with before making a decision on a 13 or 7. Be sure this is done accurately, its amazing how small miscalculations can change a case. Go to the NOLO calculator web site.

I saw 4 attorneys before I decided which way to go and 3 said chapter 7 and 1 said chapter 13 with a $1000.00 a month payback. Guess who was wrong?

If you are facing a potential 10% pay cut in January then maybe you should wait until your 6 month look back numbers adjust after the cut. You will want to keep those financed cars until after you file because those payments will help your means test on a chapter 7 qual. If your income decreases as scheduled and you have accounted for all allowed expenses in a chapter 7 then you should be able to get into a 7 without a problem.

I am currently letting my house go after I exhaust all modification tactics etc, so I had no need for a chapter 13 especially because I did not want to be in trustee hell for 5 years.

Not including my student loan and vehicles I kept, I was able to discharge over 800k in total debt. No regrets at all! it can be done.

ST

[helpmeout]

Curiouse,

My numbers were similar to yours and I was 50k over median in my SoCal county as well so I understand where you are coming from. First, I would run my own means test and account for ALL expenses allowed to get a clear picture of what your dealing with before making a decision on a 13 or 7. Be sure this is done accurately, its amazing how small miscalculations can change a case. Go to the NOLO calculator web site.

I saw 4 attorneys before I decided which way to go and 3 said chapter 7 and 1 said chapter 13 with a $1000.00 a month payback. Guess who was wrong?

If you are facing a potential 10% pay cut in January then maybe you should wait until your 6 month look back numbers adjust after the cut. You will want to keep those financed cars until after you file because those payments will help your means test on a chapter 7 qual. If your income decreases as scheduled and you have accounted for all allowed expenses in a chapter 7 then you should be able to get into a 7 without a problem.

I am currently letting my house go after I exhaust all modification tactics etc, so I had no need for a chapter 13 especially because I did not want to be in trustee hell for 5 years.

Not including my student loan and vehicles I kept, I was able to discharge over 800k in total debt. No regrets at all! it can be done.

ST

The thing is that the OP is going to have to come up with a negative $1K in ALLOWABLE expenses to make up for the $1K student loan payment in order to qualify for a Chapter 7, because the chances of that payment being allowed on the means test is slim to none. In your situation, how much was your student loan payment?

[screentest]

Yes and that is where the trick is..... the expenses. The OPs family size and numbers are similar to mine so using my expenses (standards)as an example and not including my student loan I was still negative. If as posted, an additional 10% paycut is forthcoming, then that comes out to a monthly loss of $1167. Put these factors together and a chapter 7 seems a lot more likely.

ST

[espo1357]

Curiouse,

My numbers were similar to yours and I was 50k over median in my SoCal county as well so I understand where you are coming from. First, I would run my own means test and account for ALL expenses allowed to get a clear picture of what your dealing with before making a decision on a 13 or 7. Be sure this is done accurately, its amazing how small miscalculations can change a case. Go to the NOLO calculator web site.

I saw 4 attorneys before I decided which way to go and 3 said chapter 7 and 1 said chapter 13 with a $1000.00 a month payback. Guess who was wrong?

If you are facing a potential 10% pay cut in January then maybe you should wait until your 6 month look back numbers adjust after the cut. You will want to keep those financed cars until after you file because those payments will help your means test on a chapter 7 qual. If your income decreases as scheduled and you have accounted for all allowed expenses in a chapter 7 then you should be able to get into a 7 without a problem.

I am currently letting my house go after I exhaust all modification tactics etc, so I had no need for a chapter 13 especially because I did not want to be in trustee hell for 5 years.

Not including my student loan and vehicles I kept, I was able to discharge over 800k in total debt. No regrets at all! it can be done.

ST

Screen, if you have HOA fees, are you paying them?

Anyone? HOA fees? What is your strategy on those if you no longer want the home?

[screentest]

Screen, if you have HOA fees, are you paying them?

Anyone? HOA fees? What is your strategy on those if you no longer want the home?

No. I'm not in an HOA so no fees for me.

ST

[curiousbk]

You got rid of 800,000 in debt?? Wow. I thought I had a lot!

First mortgage is about 1500
Second is 600

I can strip second if I go 13. First is larger than value by about 50-60k... My goals with house..hard to say. Even if I stripmthe second, it is still upside down by 50-60k....and all that negative equity is non recourse....so if I walked,they can't come after me.

If I go 13 it sounds like my student loan will ballon somewhat...as it won't get ful payment during the plan, and as I u derstand it, I can't make side payments to keep up with the interest...which will compound while in the LAN...so I lose 70k in CC debt and strip- 70k second, but could easily add 30k to my student loan...and that I will be stuck with...

A 7 sounds quickmand clean to get rid ofmthe Cc debt, but how do I qualify? Sell my two hondas and buy two bmws? Put my kids into daycare for six months and create new expenses? One lawyer said to get separated..but I'm mot interested in committing fraud...

My 10% pay cut could happen. That would be 14k per year. Ouch. Maybe wait for that to happen and see if I qualify?

Should I stop paying on any bills as I approach filing? Lawyers told me to keep paying but they all seemed like they had hands tied with what they could really tell me. I wouldmthink it would be in my I terest to not pay credit cards, cars, and or house in months leading yp to BK? Pocket cash, spend it before filing? Or is that way stupid and wrong?

If I skipped three months of minimum payments before filing, I'd have 3000 in pocket to pay lawyer...

[helpmeout]

Before you make a decision, you need to compare rentals to your first mortgage. You may find that they are higher than your first mortgage payment. If you do go with a Chapter 13 to strip the 2nd mortgage, you need to stop looking at it like you are adding $30K in debt, but looking at it like you are losing over $100K in debt. But you get to stay in the house. And you may find that it is easier to downsize (and you will need to downsize) your budget without all of that debt.

If you go the Chapter 7 route and find a way to qualify, if you want to stay in the house, you will have to either pay the 2nd or see if they will settle with you.

BTW, CA is a non-recourse state only in regards to the first mortgage. And then only if it is the original mortgage, which means that if you refinanced the bank can come after you if you default and they can't sell the house for what you owe on it. Obviously, this would be only if you don't file BK.

As for your idea of putting the kids in childcare, chances are that expense will only be allowed if your wife goes back to work. Which will then increase your income.

[curiousbk]

the payment on my first mortgage is about $1500. to rent a house like mine is about $1800-2000. my second is about $600-650. paying the first AND the second is $2200.. plus I have HOA of about $120. if you factor in my tax write off I am breaking even.. my overall monthly n ut is similar to rent.

IF - I stripped the second, my monthly would be MUCH lower than rent. one thought I had, was that if I did strip the second..and after my credit was repaired... I'd have the ability to actually rent this house out at a profit! i think....

here is a question you guys might know.. if I strip the second... then that monthly payment goes INTO the plan right? so my second woudl not get a full $650/month out of me, they would get in line with my student loan, credit cards, etc... so I would not be making that payment..

i'm not sure exactly what my monthly plan payment would be... but I assume in general, it would be far less than the combined total of my $1000/month student loan payment $2000/month credit card payments, and $650/month second mortgage payments...

is it possible to be in a ch 13 and actually have money left over.. so that in reality, there is money left over each month to actually go out to dinner once a month, or save some money... one thought was that if I had a bit of spare money left over, I could sock it away, and after the plan was over, I'd be able to send that big chunk back to the studen loan, or something, to offset the interest/principal that will increase wjhile I am in the plan.

thanks!

[helpmeout]

Your student loan isn't in the mix in any form of BK as that is non-dischargeable and will be put on hold during the Chapter 13. And if you do a 13 for the lien strip, you don't get to include that payment in your monthly expenses.

A lien strip essentially turns the 2nd into an unsecured loan and is on the same level as credit cards. At the end of 5 years, you would be able to keep the house (as long as you keep it current) and would only be responsible for the first mortgage as the 2nd will get discharged and with the lien stripped, the bank can't go after the house. Even when the market improves.

Given the information that you gave me, if I were in your shoes, I would go with the Chapter 13 and stripping the 2nd mortgage. Especially since it is less than what rent is. And from what I have read, rent is on its way up. But that's me. You have to decide for yourself what the best course of action is for you.

[chrisdfw]

I think you come out about the same either way. If you do a 13 you get rid of the second mortgage, but you pay 1000 a month over the period. You student loans should get paid down because they will get treated just like other unsecured creditors. So out of the money you pay almost half should go to paying down student loan. Out of unsecured debt 120 / 260 (70 2nd, 70 CC, 120 Student loans) is student loan and they should get that proportion of the money.

IF your payment is 1000 a month, that is 60k over 60 months, about 27k will go to paying down student loans. In return for giving 33k to the credit cards and now unsecured second you get to remove a 70 thousand second mortgage. If you plan to keep the house you are making a pretty good trade with a 13.

Only an attorney can give you legal advice, but to me a 13 is just as good as a 7 if you plan to keep the house.

The student loan gets paid down by some of your payment and that makes a difference since you have to pay it anyway.

[curiousbk]

here is a question / issue I hadn't thought of until just now... my student loan payment is $1000. i have been paying that amount for some time.. .but it's basically based on a very LONG repayment term... it's like my mortgage..i'll be paying the loan for another 25-30 years.... nothing says I can't put the student loan on a faster repayment track...

assume I decide to go intoa 13... do they calculate the % that an unsecured creditor gets based on the GROSS amount you owe them, or based on the monthly amount you pay? If it is the latter, I coudl modify the repayment term, increase what I pay them, hold off on BK untilt he amount becomes more established/regular.. say 6+ months.. then file.. then I'd have a $1500/month payment to student loan.. then if the monthly amount I pay means they get "MORE" in the plan, I would effectively get them paid a higher chunk per month and woudl avoid it ballooning so much in BK? or am I all wrong.. I kind of suspect I am.. and that all the court will care about is HOW MUCH they are owed.. and then it will determine what they get in relation to everyone else.. i could be paying them $500/month instead of $1000/month and i assume the only factor that will really impach how much the studen loan will get per month is going to be based upon how much I owe them in total...

the 13 will get rid of my second mortgage..which would be nice.. i'd still be upside down in my house, but not nearly as much. zillow says my house is worth 250k... i take that with a grain of salt. my first is 315k. but it's at 2% for the next 7 years, then increases 1% / year up to a cap of 5% in year 10.... so my payment will slighly increase in the long run...but over the next several years, it will be low at about $1500.

living in my home at $1500/month would be nice. at the end of the 13 plan, my cars would be paid off, second gone, credit cards gone... $3500/month of costs would be gone. i could save a butt load of money every month for retirement, kids college, etc... stuff I shoudl be doing now but can't b'c I'm tapped out every month.

i work at a pretty stable job... with very little liklihood of layoff or job loss..so odds are my income would stay solid over the plan... maybe slight pay cuts...but i should be able to maintain the plan.. unless the trustee sets my payment so high that I am choked to death and can barely make it..

when a competent BK lawyer sets up a 13 plan.. do most people wind up in a situation where literally, every spare cent after house/cars/food/basic necessities are paid for that they have to give it all up to teh trustee and they are broke off their butts during the plan.. or in reality, do they craft the "expenses" such that the person doing the 13, makes a fairly big payment.. but in reality, they put down $1500 for food when you only really need $1000...and so at the end of the month there is money left over to have a dinner out, or do some fun family activities..

thanks.