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Fritz
Fritz, Attorney
Category: Bankruptcy Law
Satisfied Customers: 302
Experience:  Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
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I am working on purchasing a new home in Iowa. I have a pre-approval

Resolved Question:

I am working on purchasing a new home in Iowa. I have a pre-approval in place. I am currently in chapter 7 bankruptcy and my lawyer mentioned surrending the current home and buying the new one. Would the Court approve of surrending one home to buy another? Wouldn't that kill my credit since I would be foreclosing a home? I am super confused. It sounds like a great idea to just walk away from one and buy the other but I have reservations.

Thank you
Joe
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  Fritz replied 2 years ago.

Fritz :

How far along are you in your Chapter 7 bankruptcy case?

Fritz :

Assuming that you could surrender your current home and buy a new one while in your bankruptcy, would there be any equity remaining to pay your creditors in the bankruptcy?


 

Customer:

We have been paying for approx 18 months


 

Fritz :

Paying on your current home for 18 months?


 

Customer:

we have a first mortgage that has a balance of 56000 and a second of 22000. The home is worth approx 82500.


 

Fritz :

And how long have you been in your Chapter 7 bankruptcy?

Customer:

we have been paying on the bankruptcy for 18-20 months


 

Fritz :

In a Chapter 7? Are you sure you're not in a Chapter 13?


 

Customer:

yes i am sorry

Fritz :

Oh, okay... this makes a lot more sense now :)


 

Customer:

sorry! :)


 

Fritz :

No problem

Fritz :

I'm curious... how did you get pre-approved for financing during your Chapter 13?


 

Customer:

we found a place that would accept our loan through omaha ne

Fritz :

You're not doing anything wrong, but the lender is probably breaking the law.

Fritz :

So you want to surrender a house worth 82500 that you have about 4500 equity in, correct?

Customer:

yes

Fritz :

And how much is the house you want to purchase?


 

Customer:

99000....our monthly payment would actually be about $40 less per month


 

Customer:

our current lawyer says we can surrender this property and buy the other one no problem. the lender doesn't think that will work with the court. our lawyer says the lender doesn't know what they are talking about


 

Fritz :

And are you paying your current mortgages (1st and 2nd) through the Chapter 13 Plan (sending monthly payments to the Trustee) or directly to the mortgage lender?


 

Customer:

directly to the lender


 

Fritz :

And how would you make the down payment on the new house (and how much would the down payment be)?

Customer:

3675 either gift or retirement plan

Fritz :

You MIGHT be able to do this... it's a situation where some bankruptcy judges would allow it and others wouldn't.


 

Fritz :

The $4500 (or whatever equity comes out of the home sale) would go to your unsecured creditors. Also, the Trustee would probably need to sell the property to maximize the return to your bankruptcy estate.


 

Fritz :

Rather than foreclosure


 

Customer:

ok. so under the scenario that you just described it would NOT be a foreclosure. It would be surrendered and sold?


 

Fritz :

See, that's one of the difficulties of doing this sort of thing - you need to show the Trustee and bankruptcy judge that your creditors are going to be better off financially in some way, or I don't think it will be allowed.


 

Fritz :

Paying $4500 in equity (ideally more, since Trustee's fees would have to come out of this) would help.


 

Fritz :

This will be complicated... you'll probably have to put your home (1st and 2nd mortgages) back IN your Chapter 13 Plan. You'll want to discuss this with your bankruptcy attorney because I'm not sure exactly how this works in your jurisdiction.


 

Customer:

and is that why my lawyer says it is a modification to the plan because the creditors will benefit from it without putting me in a predicament


 


 


 

Fritz :

THEN you'd file a complex set of motions at a later date to sell the current home, purchase the new one, and modify your plan accordingly.


 

Fritz :

Personally, I don't like the idea of sacrificing the equity in your home when you could retain 100% of that money if you wait until after you receive your discharge.

Fritz :

Do you have an idea what your attorney would charge to do all this? How will the attorney be paid for this extra work?

Customer:

that I have not asked yet....my thought was through the plan based on what we originally signed up for

Fritz :

Most bankruptcy attorneys will charge extra for Motions to Modify. Quite frankly, this is a LOT of work for your attorney, and he will need both the Trustee and bankruptcy judge on board to pull this off.


 

Customer:

ok.

Fritz :

Also, the bankruptcy judge might disallow your proposed modification if it pays your attorney anything substantial, so that's another factor to consider.


 

Customer:

makes sense

Fritz :

I've reviewed thousands of Chapter 13 case and literally NEVER seen a debtor do this during their bankruptcy.


 

Fritz :

It may be possible, but it's not cost-effective.


 

Customer:

ok. that's what i was wondering. the lawyer acted like no big deal and the lender didn't think it would work. i was stuck in the middle trying to figure out what made sense....thank you very much

Fritz :

If your jurisdiction has a lot of cases, the Trustee will probably balk at selling your property, so that's another big issue (it takes a lot of time and money).


 

Fritz :

Thank you, XXXXX XXXXX have any other questions for me?


 

Customer:

i do not at this time. thank you for your information


 

Fritz :

Good luck with your case, and have a great evening!


 

Customer:
Fritz, Attorney
Category: Bankruptcy Law
Satisfied Customers: 302
Experience: Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
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Fritz
Fritz
209 Satisfied Customers
Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases