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Roger
Roger, Attorney
Category: Bankruptcy Law
Satisfied Customers: 31022
Experience:  BV Rated by Martindale-Hubbell; SuperLawyer rating by Thompson-Reuters
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I am trying to determine whether Chapter 13 Bankruptcy is right

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I am trying to determine whether Chapter 13 Bankruptcy is right for us. I am currently employed as an adjunct college instructor making varying income between $600 and $1800 monthly - I have been unable to find steady full time work since completing my doctoral degree. My wife makes $1450 every two weeks before 401K loans, benefits and taxes. We have a $14,000 high interest secured loan (which we are current on, barely) secured by a car and about the same amount in credit cards and unsecured debts that have gone into collections, and we are not able to pay on those. No judgments or garnishments yet, but I am expecting it. We have been nearly 90 days past due on our mortgages for some time, and have avoided foreclosure with very painful 401K hardship withdrawals. We have a complicated situation related to home mortgages. When we refinanced our mortgage in 2009 the original mortgage kept the HELOC open and extended full credit on it. We ended up charging 128,000 on that HELOC in addition to the 180,000 we owe on the house. In 2010 the line was locked. We now pay $600 monthly interest only payments on the HELOC and $1350 monthly on the first mortgage. That stands to go up if and when interest rates do. During a collections call shortly after they locked the HELOC, I discovered that the HELOC lender believes themselves to have first position on the house, which they do not. My wife is very concerned that if we try to file bankruptcy or do a modification, they may end up calling in the loan entirely because they should never have loaned us the money. So we end up continuing payments we can’t afford and we've let so much else go. I have no real opportunities for full time work in the near future and am afraid we've slid to the point that we can't go any further without catastrophe and would like to explore the Chapter 13 option IF we can qualify and if we can do it without triggering a financial disaster. My wife works in banking and is concerned that the filing may impact her status at work also. She is especially concerned about the situation with the HELOC. Any guidance would be appreciated.
Hi - my name is XXXXX XXXXX I'm a Bankruptcy litigation attorney. Thanks for your question.

The biggest problem may be that MOST banking institutions will not allow an employee to continue working if he/she files for bankruptcy. There is no law on this issue, but that's the policy that most all banks have -- so that may be what prohibits you from filing. She should check on that before doing anything.

As for chapter 13, the basic rule is that you must have enough income to sustain a repayment plan - - in other words, there must be proof that there's a cash flow to sustain payments. The good thing about a chapter 13 is that you get to keep all of your property, but the bad news is that you have to repay all of the money - - so you don't get a break in that regard.

However, under a chapter 13, you can reduce your monthly payment amounts by extending the terms of all loans. Also, you can remedy the default on your mortgage loans by repaying the debts over time. Here's a good link that outlines the chapter 13 process: https://www.google.com/search?q=chapter+13+bankruptcy&ie=UTF-8&oe=UTF-8&hl=en&client=safari

If you can file a chapter 13, it is the best option of all of the bankruptcy filings.
Customer: replied 3 years ago.

OK so say that is the case and she cannot file .... how do you think our HELOC situation could impact her work if we address it? I mean, if I decide to pursue modification, which both lenders offer all the time, and the HELOC lender does a title search and sees they are not on the title in any position (which I believe is the case) could they call in the whole loan? If they do, what is the potential impact? This one issue is the key major source of stress in our lives and I need to figure out how to address it. If not bankruptcy, then what do we do? We owe $300,000 altogether but the property is only valued at $140,000.

 

And by the way, we did not know that the other bank didn't mean to continue to extend credit. It seemed like they should have closed out the HELOC when we refinanced, but they just kept sending us checks, debit cards and letter imploring us to borrow money.

The lien status or lien priority of the HELOC loan will not affect your loan as that's a mistake of your lender and they can't call the loan because of that. HOWEVER, the lender can call the loan IF you are in default. Certainly, if the lien rights are not what the bank thought it was, that could impact whether or not the lender agrees to the loan modification.

I can't say how the lender would view this, but I would really doubt that the lender is wrong about it's lien rights and secured status. It does happen, but it's rare, so there may not be an issue with that.

In any event, if bankruptcy isn't filed, the only other option is to go for the loan modification. If that doesn't work out, there are no other relief options - - you would be facing having to pay off the debt OR the foreclosure would likely ensue at some point.

Roger and other Bankruptcy Law Specialists are ready to help you
Customer: replied 3 years ago.

Thank you!