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Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 18581
Experience:  B.A.; M.B.A.; J.D.
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Ch 13

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I have two issues:

1. I am in deault on my mortage, I make a very good salary, just not enough for the house I'm in and am drowning. Trying to short sell below market value, no buyers yet, likely won't sell.

2. I have 65k in cc debt.

Would like to get my life back together. I make too much for a Ch. 7. My question is: Is it better to file a Ch. 13 and pay the entire 65k in cc debt in a 5 year plan or go into a debt settlement program? Also, how will this effect the potential outcome of the inevitable foreclosure? NJ law allows for deficiency judgements. Would filing a Ch 13 now protect me from a potential significant deficiency judgement on the house down the road?
How much do you make a year?

How many people are in your household?

If married, what is your spouse's annual income?
Customer: replied 8 years ago.
175k. unmarried, 2 people in household

Ok. Chapter 7 definitely not an option with that kind of salary.


My question is: Is it better to file a Ch. 13 and pay the entire 65k in cc debt in a 5 year plan or go into a debt settlement program?

Response 1: With that kind of income, I think you should try debt settlement first.

Also, how will this effect the potential outcome of the inevitable foreclosure? NJ law allows for deficiency judgements.

Response 2: If you do a short-sale and get agreement from the lender that it will accept net proceeds of the short-sale as full satisfaction of the mortgage, then the lender will send you a 1099-C for the forgiven debt and this debt forgiveness will be treated as income by the Internal Revenue Service. However, if the forgiven debt was for a primary home, you are required to report this debt on your taxes but it will not be treated as income because of the Mortgage Forgiveness and Debt Relief Act that was passed in December 2007. If the debt forgiven was for a second home, investment property, and the like, then you can use the insolvency provision to wipe out the debt. You are insolvent if your total liabilities are greater than your total assets.

If debt is not forgiven then the lender may come after you for the deficiency and you can try to work things out with the lender before contemplating bankruptcy because you make too much for the bankruptcy to be worth it for you..

Would filing a Ch 13 now protect me from a potential significant deficiency judgement on the house down the road?

Response 3: The way chapter 13 works, if you have a property that is under water and you want to do a short-sale, once you enter a bankruptcy you no longer have full control over the property. You have to get permission of the bankruptcy court before you can sale the property. Any deficiency has to be put into your chapter 13 plan. If you have already filed a chapter plan then you will be required to file an amended plan to account for the deficiency. Remember that your plan will be 5 years and anything can happen in 5 years. So, if you want to retain control of the sale, then you have do the short-sale first and file bankruptcy later.

Customer: replied 8 years ago.
Many thanks...This is primary residence and the arrears are huge from 6 months of non-payment. If I do the debt settlement, what happens with the arrears on the house - it is crazy upside down and the payments are more than I can afford. Didn't make enough for the Loan mod - tried that. Will I have to re-pay arrears?
What is the potential deficiency?

Where are you going to live?

Customer: replied 8 years ago.
It could be 100-200k. The arrears now are 40k. I just want to surrender the property or wish they would foreclose, but nothing is happening....it is on market for 200k less than what is owed with n o movement,
Customer: replied 8 years ago.
living in cheap apartment

Ok. Then I take the debt settlement option back.

Do a chapter 13. Surrender the property in your chapter 13 plan. The lender will then file a relief from automatic stay to foreclose. Once it forecloses it has to provide the sale information to you and the bankruptcy court.

You can then use the new information to amend the plan and classify the deficiency from the foreclosure as unsecured debt and then make payment on it for the next 5 years. Remember that you are not making the payment on a dollar to dollar basis, it could be 10 cents or 20 cents to a dollar. Usually, the higher your salary the higher the chapter 13 trustee would you to increase your payments under the plan.

Phillips Esq. and other Bankruptcy Law Specialists are ready to help you
Customer: replied 8 years ago.
I greatly appreciate your time....Can I pay additional to ask a couple more questions? Since any deficiency judgement is separate fro foreclosure and can only be filed after the sheriff's sale is complete (or short sale if I'm lucky...it could be 2 years before a judgement is placed....how would that work two years from now?
If that happens, you have to amend the chapter 13 plan to add it becuase it is already part of the plan when you included the mortgage in your bankruptcy filing.

If you are not able to read my asnwer, I will contact technical support.

Let me know.
If that happens, you have to amend the chapter 13 plan to add it becuase it is already part of the plan when you included the mortgage in your bankruptcy filing.

If you are not able to read my answer, I will contact technical support.

Let me know.
Phillips Esq. and other Bankruptcy Law Specialists are ready to help you
Customer: replied 8 years ago.

ok...and will the arrears (that are massively piling up) have to go into the bk as well.? And will future monthly mortgage payments continue to have to go into the bk until they foreclose? This will all add up to every dime I make in the next five years....

 

Sorry for all the questions, it is a lot to digest. I just want to make the right decision...what if I didn't file bk and just went the debt settlement route,....knowing all of this, and knowing that there may be a good chance they may not pursue a deficiency judgement....is it still better to file the Ch 13 (I'm guessing if I'm liable for the arrears I would have no choice....I have never been in this position before - are they likely to let me walk away from the arrears and future months ???

Once you file a chapter 13 and put it in the plan that you want to surrender the property, by all intents and purposes you no longer own that property. The bank now owns it. You are getting into plan to make your life easier not worse. So the arrears and monthly payments are going to be part of the deficiency if the lender wants to go through that route. The lender might decide after the foreclosure sale to only charge you with half of the deficiency--say $50,000.00 instead of $100,000.00. Thus, when you surrender the property, the arrears and monthly payments are technically no longer your problem.

Chapter 13 also has debt limit. Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts are less than $336,900 and secured debts are less than $1,010,650. These amounts are adjusted periodically to reflect changes in the consumer price index.


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Customer: replied 8 years ago.
You have been fantastic. Just your opinion....would there be any reasonable argument to NOT file for Ch 13 (and try to short sell the house to avoid all judgement and just handle the 65k with debt settlement - or is that just wishful thinking?) What would you do? Thanks again.

Your debts are too great to be efficiently handled in any other way than in a bankruptcy forum.

One final thought: Remember that the lender like any other creditor in a Chapter 13 case is required to file a proof of claim within a certain period of time if it wants to be paid. Deadline for filing proof of claim will be included in a Chapter 13 Section 341 Meeting Notice. So, the lender must file in a timely matter the amount it thinks that you owe. You are allowed to challenge the lender's calculation and so forth. So if the lender forecloses or wants to accept a short-sale, per bankruptcy rule it must file a proof of claim if it wants to get paid at all for any deficiency arising from the foreclosure or short-sale within the time frame specified in the Section 341 Meeting Notice.


Once your chapter 13 plan has been completed in 5 years, all debts that are not excepted from discharge for some reason are discharged.


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