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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
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Experience:  Bankruptcy professor.
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Groundwork I own two homes, 1) $525K1st. Property now worth

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Groundwork: I own two homes, 1) $525K1st. Property now worth $225K homesteaded, when my business went bad, called bank, said may have problem in next 6 months how can you help, they replied your not deliquent we cannot help, after 3 months deliquency I called and asked how they can help they said, OMG your behind on payments we can't help you. Wife and I decided to choose between the 2 homes and moved to our other when tennants lease ran out. 2) $210K1st, $150K2nd HELOC - Property worth $211K - renting home #1 for income, been two years made no payment made on $525K mortage. 2nd home we are deliquent on second and have debt on cards - seriously considering bankruptcy. Question what will happen with the HELOC on our current homestead and card debt?
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 3 years ago.

Hi JACustomer,

If you file a Chapter 13 Bankruptcy, you will have to make payments of all disposable income to the Bankruptcy court for 3 - 5 years. At the end of the 3 - 5 years, your unsecured debts - including the second mortgage - will be discharged, and the second mortgage lien will be removed from the house.

If you file a Chapter 7 Bankruptcy, wherein you would pay nothing to the court, the obligation to pay the second mortgage will be discharged, but the lien will not be removed.

I think this is what you wanted to know. If not, please let me know.

Thank you!

Customer: replied 3 years ago.
<p>cfortunato,</p><p>Thank you for the discription, Can you let me know the process for the following questions in both scenarios (chapter 7 & 13) How do the courts determine all disposable income? If we come to a payment arrangement, and down the road I come across an inheritance, will the courts allow early payoff for an early discharge, if not are there any penalties? How long does the bankruptcy process take; start to finish (filing, discovery, court) - till they leave me to my payments? As I have income from my rental property; when in that process will they prevent me from collecting it, and until that point how does that income affect the outcome of the court's decision? When do I surrender, if at all, my rental property to the court? At what time should a person/landlord let a renter know they are filing bankruptcy and they are on their own? </p>
Expert:  cfortunato replied 3 years ago.
Disposable income is not an issue (it is not relevant) for Chapter 7. For a Chapter 13, disposable income is the money left over after from one's pay after deducting all allowable expenses, such as housing costs, transportation costs, food, medical care, etc.

Yes - the court will allow an early payoff if you inherit money while in the Chapter 13.

If you file a Chapter 13, you have to start making the payments within one month after filing.

You will not be prevented from collecting the rent from your rental property. The net rent (gross rent minus expenses) is included in your income for determining the plan payments.

The Bankruptcy court will not take your rental house, because it has no equity, as the mortgage is greater than the market value. In fact, if you are already behind on the mortgage for the rental property, filing a Bankruptcy will not affect that property at all, so that there is no reason to inform your tenants of your Bankruptcy filing.

Edited by cfortunato on 1/7/2011 at 8:11 PM EST
Customer: replied 3 years ago.

Regarding my rental property, last years taxes were paid by the bank. When we were affording the home our payments were approx $4000/mo - the renters pay $1200/mo - I have no idea when forclosure on that property will happen or even if it will. The lender continues occupancy checks monthly. I'm steering towards chapter 13 but still unclear about the process concerning the instrument of libility naming me as the borrower. what happens to that liability, even though there is no equity in the property? And regarding the negative exsiting net rent when calculated how will the courts proceed in deciding what to do?

Expert:  cfortunato replied 3 years ago.

For the rental property, your obligation to pay the mortgage is discharged, regardless of the equity. The obligation to pay that mortgage would be discharged in a Chapter 7 or a Chapter 13. Don't forget, though, that discharging a mortgage is not the same as removing the lien. Even though you no longer have the legal obligation to pay that mortgage, the lender can still foreclose on and sell the house if the mortgage is not being paid.

You would deduct any expenses - if any - you are actually paying for the rental property, and deduct those from your gross rental income. The resulting net rental income is added to any other income you have to determine how much you have to pay to the Bankruptcy court each month. You would not be able to subtract your mortgage payment or the property taxes on the rental property, as you are not paying those.



Edited by cfortunato on 1/7/2011 at 9:24 PM EST
Expert:  cfortunato replied 3 years ago.
Don't forget, though, that discharging a mortgage is not the same as removing the lien. Even though you no longer have the legal obligation to pay that mortgage, because discharged, the lender can still foreclose on and sell the house if the mortgage is not being paid.

Edited by cfortunato on 1/7/2011 at 9:48 PM EST
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
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Customer: replied 3 years ago.

That almost sounds like someting is missing... In that sinerio technically I could still be in posession of the property until the forclosure procedings or sale of the house are final, dispite the out come of the chapter 7, am I correct in that assumption? and if that is true and a lender forcloses, will a foreclosure negative still go on a credit report?

 

For clarity, when a person discharged of that obligation to pay the mortgage, property then is no longer theirs to collect money's from and what, if you know, would happen to the tennants? And in this process would a person know when they are approximately 30-45 days from being discharged from the obligation? sorry so deep...

Expert:  cfortunato replied 3 years ago.
Please read the answer I sent at 4:25 and let me know if this explains it for you.
Customer: replied 3 years ago.
Thank you...
Expert:  cfortunato replied 3 years ago.
You're welcome! And thank you for accepting my answer!

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