Need unbiased np-dog-in-the-fight advice!

[cw2617]

On my absolute wit's end as we consider our current options. I'll outline our situation and then hopefully await general thoughts or advice:

US: Married couple (he: 42 & her: 41), 2 kids (10 & 5). 1 income: $95,000 per year.

PROB: Just accepted higher paying job (relo from MA to NYC). Bought primary residence in 2004 for $331,000 - just appraised at $220,000 (ouch). Owe $299,000 on 5 year ARM. Paying roughly $2200 per month in mortgage/PMI. Have no assets in way of extra property, toys, investments, etc. Haven't been able to kick into 401k plan at all in last 6 years, and owe $50,000 in credit cards (not frivolous purchases - racked up for cost of living expenses to make ends meet over past few years - nothing tangible to show for it).

We want to sell our house and move to NYC to start this great new opportunity and move forward with our lives. Have a qualified homebuyer who signed a P&S agreement with us for $230,000 including 10k earnest money put down which we then took to bank to try to get a short sale. Bank told us to continue making payments (this was in February) and they would work with us to make something happen. Long story short, they did not agree to the SS nor presented any other option. They told us to rent the house, but the is unrealistic since we could not get enough in rent to cover the mortgage (not even close) and are not in any position to be absentee landlords. We consulted an attorney who ran the means test and said we passed. She advises us to file Chapter 7 immediately.

I am wondering if this is sage advice? The realtors say don't trust the lawyers, the lawyer says don't trust the realtors or banks, and the banks say "whatever." Filing seems so distasteful based on how I was raised, but the bank has not really left us any other alternatives as MA is a recourse state and the bank would surely sue for a deficiency judgement of $79,000 which we can't pay. Of course, now that I am in NYC and paying a new rent and expenses (not cheap and at least equal to our budget from MA) we stopped paying our mortgage and are now 1 month past due. The bank now says the SS is back on the table, especially knowing that we have hired an attorney and are contemplating Chapter 7. What is the best thing to do? If the bank now comes back with a SS, should we stop filing and go forward with that route? Is a Chapter 7 demonstrably worse on your credit than a foreclosure, SS, or deed in lieu? I know most of the ramifications and we are loathe to lose our good credit score (730+) but have resigned ourselves to this fact. Just looking for best thing to do. HELP!

[daylate]

Looks like you are an ideal candidate for BK. if the attorney is right and you pass the means test then go for it imo. Time to get over the "this isn't the way i was raised" mantra. Most of us never expected to be in this situation either. Look at it from a biz perspective. How else you going to get out of the mess your in?

[justbroke]

It's in the bank's best interest that you not file bankruptcy. It's as simple as that. Realtors want to earn a commission, so they'd rather you allow them to list it and they'll earn a commission on the short sale. They too, don't want you to file bankruptcy. In the end, each is looking out for their own bottom line... the real question is... shouldn't you be?

If you've been paying everything on time up to filing bankruptcy, you should actually have scores that bounce back! Your prior history will still be there, although the accounts marked as IIB (included in Bankruptcy). I had relatively decent scores before filing, and I'm back into the 650's a year after discharge. (I was in the low 600's when I filed.) It will probably take a couple of years to get back into the 700's, but don't worry about your credit score. Worry about your financial house!

Your problem may be that you end up in a Chapter 13. I'm not going to sugarcoat it, but the new job, more money and relocation are going to make this complex. That you will probably surrender the MA home, will probably have the Chapter 7 Trustee trying to force you into a Chapter 13 because you won't have that mortgage. However, the UST (United States Trustee) expense allowance in NYC (New York County if you're in Manhattan) for a family of four is $4,567 a month with a non-rent expense of almost $1,000 as well. That's certainly more than your MA PITI on your home! (Queens County is $1,815, Bronx County is $1,777, Kings Count is $1,790.) You should certainly run the numbers and the scenarios!

This case will be "complex" with the move and change in employment. If you want to do this, you will need very good representation that can fight the issues with moving at the same time as filing (since you'd probably need to file in Massachusetts).

Think of this as a business first. Do what's right for your family.

[sh9730]

Yes, Im not an expert in this yet, but make sure the lawyer ran your numbers with the NEW job etc. as you are required to disclose any "known" increases in income.

[helpmeout]

The initial means test is strictly a 6 month look back. The new income would not be listed until the job actually starts and then it would be on the schedules that look forward. Why wouldn't the new income be listed? Until the OP actually starts the job or has a contract, the job can fall through and not happen.

[cw2617]

Thanks for all the helpful replies. I started this new job on February 25th. Our attorney asked for our 2009 & 2010 tax returns which both show a taxable income of around 73,000. Obviously I make a lot more than that now and had concerns that we would not pass the means test. She assures this is the case. If you file Chapter 7 and are forced into Chapter 13 - can you rescind the whole process and start over or are you committed once you file the paperwork?

[newbie2]

Thanks for all the helpful replies. I started this new job on February 25th. Our attorney asked for our 2009 & 2010 tax returns which both show a taxable income of around 73,000. Obviously I make a lot more than that now and had concerns that we would not pass the means test. She assures this is the case. If you file Chapter 7 and are forced into Chapter 13 - can you rescind the whole process and start over or are you committed once you file the paperwork?

You can't be forced in to a Chapter 13. It is voluntary. If you start out filing a Chapter 7 and something happens (UST wanting you to convert to a Chapter 13) you can just say no. However you should know that the mere act of filing will be on your credit reports, even if you back out. If I were you I would interview a couple of attorneys to make sure you are a Chapter 7 case, or at least a reasonable assurance of it.

[SunshineGal]

Is a Chapter 7 demonstrably worse on your credit than a foreclosure, SS, or deed in lieu? I know most of the ramifications and we are loathe to lose our good credit score (730+) but have resigned ourselves to this fact. Just looking for best thing to do. HELP!

You've already received excellent advice, so I'll just touch on the topic of credit reports. A deed in lieu is the same as a foreclosure from a lenders standpoint, a short sale is much better. For example, conventional lending guidelines were allowing financing 2 years after a short sale and 7 after a foreclosure. (These may have changed; it’s been a while since I checked them) If you're going to have a foreclosure on your credit, than a BK really isn't going to make much of a difference. Certainly not enough to justify living under $50K in credit card debt. Add in the fact that Mass is a deficiency state and a BK becomes almost a no-brainer.

It may sound kind of stupid, but ask yourself, if you could "buy" an elite credit score, how much would it be worth to you? $50,000, $100,000? Don't forget, you would be financing the credit score paying interest as well. I caught myself actually thinking about reaffirming an upside down house for that exact reason and it just wasn't worth the price in my opinion.

[debee]

Thanks for all the helpful replies. I started this new job on February 25th. Our attorney asked for our 2009 & 2010 tax returns which both show a taxable income of around 73,000. Obviously I make a lot more than that now and had concerns that we would not pass the means test. She assures this is the case. If you file Chapter 7 and are forced into Chapter 13 - can you rescind the whole process and start over or are you committed once you file the paperwork?

The Means Test is only the first hurdle. The Means Test gets you past security at the gate, but you have to pass I/J to get into the house.

You may pass the Means Test based on your income 6 months prior to filing, but you will have to fill out schedule I (your current income) and schedule J (your current expenses) and pass those in order to get the discharge.

The court is particular about expenses and not all of them are allowed. There are standards based on your county and family size and if your expenses go over the standards they are likely to meet with objection. If you can document them & prove they are "reasonable and necessary" (such as medical), then they get through.

You should know before filing whether you are chapter 7 material, on the cusp or not a candidate. Depending on how much above median you are, and how much disposable income you have, there may be perfectly legal steps you can take prior to filing to ensure that you qualify for a 7. If you have not looked into the standards in your area, in order to compare them to your schedule J, you can do that at Nolo's website ---> http://www.legalconsumer.com/bankruptcy/nolo/

Also, once you file your chapter 7, if you subsequently want it to be dismissed I believe you can scupper your case by failing to file your 2nd financial mgmt course.

[cw2617]

Again, 1,000 thanks to all for the opinions. In regards to the post above, according to the website calculator, it says that a family of 4 has an income limit of $102,110 annualized income. However, I am now working in NYC area - the calculator says it is only $83,943 annualized. Do I only consider the MA limit since the home in question and filing attorney is in MA? Will the NY figures factor in at all?

[debee]

Again, 1,000 thanks to all for the opinions. In regards to the post above, according to the website calculator, it says that a family of 4 has an income limit of $102,110 annualized income. However, I am now working in NYC area - the calculator says it is only $83,943 annualized. Do I only consider the MA limit since the home in question and filing attorney is in MA? Will the NY figures factor in at all?

You use the state median income of the state where you reside. I believe you have to live in the filing state 90 days in order to file.

[cw2617]

OK, thanks - one last item. I have been working here since February (the company I work for was putting me up rent free from then until recently). We still paid all our bills and mortgages, etc through last month (just stopped paying the mortgage and am 1 month past due). all other obligations current in MA. I am now paying for our new apt and utilities in NY (just paid 1st month). However, there is no lease (gentleman's agreement with the landlord). The only thing in our name in NY is cable. Does this affect anything, or will we be seen as current MA residents since my family is still there allowing our kids to finsih school. I am not trying to game the system - just want to cover all the bases. If being in NY since February disqualifies us, then so be it.

[daylate]

There are 2 questions you should be asking: Which state's exemption will I use (looks like MA regardless of where you file) and which state's income and expenses guidelines come into play. Right now to me you are in limbo but if intent is a determining factor, I'd say you are NY. especially if the family joins you after school is out. It also seems to me that timing is important as every month at your new salary could affect the means test. If it were me I'd say I'm filing and have your attorney determine where to file. Good luck.