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cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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Hello, I am considering bankruptcy but wanted to find out

Resolved Question:


I am considering bankruptcy but wanted to find out if a Chapter 13 would be worth while.

I make $94,500 per year. I own a house in WV that is $50K under water and I am current on the mortgage payments. I own a condo in Gaithersburg, MD which is 130K under water. I have not been able to pay the mortgage for the last 8 months and owe roughly $15K in back payments. I have about $30K in credit card debt outstanding. I owe about $45K in student loans.

My Toyota LandCruiser is paid off. I have a $675 child support obligation in WV that is being direct debited from my check. I have about $75K in my 401K but have a $23K loan outstanding against it.

I am currently trying to get Chase to modify the mortgage on my condo but have not been successful as of yet. I am working with a housing counselor out of Baltimore who is also getting the run around.

I want to keep my condo and my house if at all possible but can not afford to pay the $5000 a month required.

My question is weather a Chapter 13 would really benefit me or if I should consider other options.

Please let me know.

Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 6 years ago.

Hi JACustomer,

Are you asking if filing a Chapter 13 Bankruptcy can help you keep your house and your condo?



Customer: replied 6 years ago.
I am trying to understand the benefits of choosing to file Chapter 13 at this point. How much debt relief would I really be eligable for?

I would also like to know if my 401K account would be attached?

Expert:  cfortunato replied 6 years ago.

401K plans are exempt from the Bankruptcy estate. This means you would be able to keep your 401K if you file.

However, if you do file a Chapter 13, you would have to pay all disposable income (gross income minus taxes and allowable expenses) to the Bankruptcy court for 5 years. At the end of the 5 years, the balance of the credit card debt - but not the student loans - would be discharged, and also your liability for the balance of the mortgages would be discharged. However, a Bankruptcy will not remove first mortgage liens. This means if you stop paying either mortgage, the lender can foreclose.


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

Customer: replied 6 years ago.
OK it sounds like the relief on the Credit card debt is the main benefit.

However, are you saying the balance of the mortgages > total mortgage loan amount will be discharged? Or, were you refering to the past due amount?
Expert:  cfortunato replied 6 years ago.

Your liability for the entire balance of the mortgages will be discharged. This just means the mortgage companies cannot get deficiency judgments for the balance if you stop paying. It does not mean that if you do not pay the mortgage companies cannot foreclose.

In other words, if you do not pay the lenders can foreclose, but they cannot come after you for the balance of what is owed.

Customer: replied 6 years ago.
OK. Sorry to drag this out, however:

1) Is this also true for second mortgages?

2) What about tax liability to the IRS? I understand that if I did a short sale or they foreclose the IRS considers the difference between the mortgage note balance and the short sale price as income to me.

3) Do you know if I could use the one time tax foregiveness to avoid this?

3) Would I be better off hiring an attorney to negotiate with Chase on my mortgage, and credit cards on my behalf?

Expert:  cfortunato replied 6 years ago.

1) The balance on a second mortgage will be discharged upon completion of the 5-year Chapter 13 plan.

2) The difference is considered to be income, but is not taxable to the extent that the debtor's total debts are greater than his total assets.

3) I think you are referring to the tax relief for home owner's whose residence is foreclosed on. This would apply to a foreclosure of your home only.

4) There is nothing an attorney can do that you cannot do regarding your debt, except charge a lot of money.




Customer: replied 6 years ago.
I appreciate you answering all of my questions.

So the benefit of Chapter 13 is basically credit card and other unsecured debt relief if I am willing to commit all of my disposable income for five years. Any idea how much I would pay per dollar of debt over the five year term? 25 cents??

And the tax hit would not be an issue because I would still have my house and my condo which I owe a combined 580K on far exceeding my assets.

A lawyer wants $2000 to do the bankruptcy. Is that a reasonable price?

Expert:  cfortunato replied 6 years ago.

The unsecured debt gets paid last, with whatever is left over after all allowable expenses, including child support and secured debts (mortgage payments). It is not uncommon for unsecured creditors to get nothing.

$2,000 is a reasonable fee for a Chapter 13 filing.

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