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My husband and I have decided to file bankruptcy. We need advice

on whether a Chapter 7...
My husband and I have decided to file bankruptcy. We need advice on whether a Chapter 7 or a 13 or possibly a 7 THEN 13 (Chapter 20) would be the best option. We live in Florida but husband works overseas teaching during school year. Net income 3,098/mth. Monthly output on bills is about $3,100-$3,600/mth. Liquidity is under 10k if we were liquidated by trustee. No money left in bank account and soon will have been completely depleted. 8 credit cards totaling 45k with $890/mth min payments ($300 is interest). Primary residence fixed 1st mtg is 117k balance ($776/mth) and 2nd/heloc ($230/mth) which was not used to buy home, is 66k paid interest only with a 2016 balloon. Home is now estimated to be worth 98k-100k so 2nd is 100% underwater. 27k in student loans (trying to move to a gov't program for $0.00 payment for 3 years) and a $100/mth college fund for daughter. $55mth life insurance. No car payment but is an old and car is overseas but I included int he 10k liquidity I listed. 100% current on all bills with zero lates as of now. This would take creditors by surprise. I am prepared to stop paying credit cards now to save for the cost of a bankruptcy but I am afraid if it is not a good idea to file now because since husband can not attend 341 meeting (waiver unlikely) so we may have to wait till May 2012 to file. I want to know your best recommendation of our course of action based on these facts: #1 File Chapter 7 on my own wihtout a lawyer to save money and also NOT reaffirm mortgages. Then try to get heloc (PNC) to settle for 10% in the coming years (or about $6,600) before the balloon in 2012 or #2 File Chapter 13 and pay a lawyer $1,500 upfront and $1,500 in the payment plan. Try to get the 2nd moved to unsecured denb and also the lien stripped. 36 month payment plan that will end up costing us about $200-$350/mth based on estimates. Or #3 File Chapter 7 to remove all debt, not reaffirming mortgage debt and then file a 13 to try to strip the lien left. I have been advised by an attorney this is not possible because they will NOT see this debt on the second as gone even if discharged in a 7 and my 13 payment plan will now be based on a higher disposable income so I will pay more in the end and may still not get the lien stripped depending on the judge. Finally....no matter what we choose would it be bad to try to tell our heloc in advance that if they don't settle that we plan to file? I have heard these banks drag their feet forever and we need a decision in a few months. Also would it be bad to stop paying credit cards 6 months before we can file and to let them know in advance we plan to file? The best choice and why you feel this way plus what to do with paying creditors until then would be appreciated.
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Answered in 10 minutes by:
10/2/2011
Ellen
Ellen, Attorney
Category: Bankruptcy Law
Satisfied Customers: 36,714
Experience: Bankruptcy Lawyer. Experienced.
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Welcome to JustAnswer,

So sorry to hear of this dilemma. I am a Florida attorney. If my answer is not clear to you, please ask me for clarification by using the reply button.

Based upon the information you have provided, a Chapter 13 would appear to be the best alternative if you want to keep your house. It would allow you to strip the 2nd mortgage and pay only on the first mortgage. However your calculation of a 3 your payment plan appears incorrect -- it would be a five-year plan.

If you are willing to possibly give up the house, a chapter 7 would give you a fresh start. After filing the chapter 7, you could negotiate with both the first and the 2nd lienholder's for modification. If you are not successful in your negotiations, you would be able to surrender the house without additional liability.

A chapter 20 would not be advisable for the reasons you outlined -- it would end up be more costly in the long run

Regardless of whether you choose a 7 or a 13, it does not appear applies both to continue to make your credit card or mortgage payments.


Please use the REPLY button if you have any questions concerning my answer. Otherwise please click ACCEPT so that I am paid by the site for answering.
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Customer reply replied 6 years ago
Hello there.

I was hoping for a little more detail please and clarification.

We are under the Florida "family of three" income level of 55k so I was told the repayment would be 3 years not 5 years. Please explain why you see a five year repayment plan for us?

Can you also explain why a Chapter 7 would not also allow us to keep our home as you suggested? We are not behind in any payments and this is our homestead. I was told that as long as payments are being made they can not foreclose even if we do not reaffirm the debt. We are not in default and the property is insured.

I was not sure if you were telling us it is better to keep paying the credit cards or not. I think there was a typo in your reply. We will of course keep paying the mortgages but am not sure if stopping credit card payments 6 months before filing is a good idea.

Please address the question of if it would be advisable to offer a lump settlement of around 10% for the underwater 2nd mortgage BEFORE filing a BK or if it is a potential waste of time? How likely will they accept a lump offer if we file 7 and do not reaffirm the debt but pay mortgage payments while we try to negotiate a settlement of 10% AFTER the filing

Please address if we should tell the credit cards we are filing a BK if we stop paying and if stopping 6 months in advance is a good idea?
Hello there.

I was hoping for a little more detail please and clarification.

We are under the Florida "family of three" income level of 55k so I was told the repayment would be 3 years not 5 years. Please explain why you see a five year repayment plan for us?
If your income is more than the state median income, the repayment period will be 5 years. I was not aware that you were family of 3-- I calculated as a family of 2.


Can you also explain why a Chapter 7 would not also allow us to keep our home as you suggested? We are not behind in any payments and this is our homestead. I was told that as long as payments are being made they can not foreclose even if we do not reaffirm the debt. We are not in default and the property is insured.

You are correct that you would be able to keep the home if you continue to make the payments. However your question was which would be more beneficial. It would not be financially beneficial to pay the entire first and 2nd mortgage since the house is so upside down.

It would only be financially beneficial to keep the house after a chapter 7 if you are able to modify both of the mortgages. After filing the chapter 7, you could negotiate with both the first and the 2nd lienholder's for modification. If you are not successful in your negotiations, you would be able to surrender the house without additional liability.

I was not sure if you were telling us it is better to keep paying the credit cards or not. I think there was a typo in your reply. We will of course keep paying the mortgages but am not sure if stopping credit card payments 6 months before filing is a good idea.
Yes that was a typo -- sorry. Typically it would be best to stop paying the credit cards prior to filing a bankruptcy.There is no benefit to making payments on debts that will be discharged in bankruptcy

Please address the question of if it would be advisable to offer a lump settlement of around 10% for the underwater 2nd mortgage BEFORE filing a BK or if it is a potential waste of time?
You may choose to make the settlement offer prior to filing-- typically you will need to be approximately 3 months late in mortgage payments before the lender will consider any type of modification

How likely will they accept a lump offer if we file 7 and do not reaffirm the debt but pay mortgage payments while we try to negotiate a settlement of 10% AFTER the filing
A lender is not going to modify a fully performing loan. You will typically need to be at least 90 days behind before they will discuss modification. They will only modify to mitigate their risk . As long as you are paying, they have no incentive to modify.

Please address if we should tell the credit cards we are filing a BK if we stop paying and if stopping 6 months in advance is a good idea?
There is no benefit to making payments on debts that will be discharged in bankruptcy and there is no benefit in advising the credit card companies that you will be filing bankruptcy
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Customer reply replied 6 years ago
Final question on the Chapter 20 and then I will accept your answer so you can get paid.

The 7 would, as you stated, require we pay off the whole balances (even if not reaffirmed) to get rid of the liens so paying double what the value is now. So essentially we still owe the balances no matter what.

You are also likely correct that they will not negotiate with us on a lump sum settlement or any better terms if we are current before or after a 7, but let me ask you this:

If we Chapter 7 (I do not hire an attorney) we will spend about $300 and it should be a slam dunk based on our bills vs income. The the mortgage debts (along with 45k credit card debt) will be discharged so no legal obligation to repay mtg loans, but we will have to keep making payments if we want to stay (we do.) We also do not have to reaffirm though so as long as we pay...we stay. BUT...If the debt is discharged, and immediately file for a Chapter 13 arguing the 2nd is not longer secured and want a lien stripping, is this possible and likely? My thought (hope) is the judge would see the 2nd mtg debt is discharged and not reaffirmed in the 7 meaning there is no repayment for this debt required. That would also mean no repayment required on it in a 13? The judge should also see that it is not secured by the value of the home so it should be eligible for the stripping. Q: Can we file a 13 ONLY for a lien removal if we have no debt to place into a plan after a 7 discharge?

Last but not least there does not seem to be anything in the BK code that says that the plan has to be complete before the lien removal is approved, though many lawyers work on that premise. So why a 36 month plasn at all? Long story short can we file a Chapter 7 and get out of the 45k in credit cards and pay the mortgages anyway (to stay) but then under Chapter 20 try to remove the 2nd lien.

We want the best choice for our situation and goal or removing the 2nd mortgage lien
I am not clear what you are trying to accomplish by filing a 20 as opposed to simply filing the 13.

It appears that the 13 would treat the 2nd mortgage as wholly unsecured and therefore it would be stripped and discharged after a three-year period.

If you filed a chapter 7 followed by a chapter 13, you would still need to make 3 years of payments to strip the 2nd mortgage

Therefore it appears to me that you would be paying for a 7 and a 13 in order to obtain the benefit that you could obtain from solely filing a 13
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Customer reply replied 6 years ago
I was thinking a discharge in a only few months on everything we have with a 7. If the 2nd mortgage balance was discharged and NOT reaffirmed then we owe them nothing. We still pay to stay but file the 13. What payments would have to be made for those 3 years if we then file a 13 is debt was discharged in the 7. Nothing is owed now correct including the mortgages if not reaffirmed? We would only want the lien removal at that point which is handled by the 13 not the 7. Is this strategy not possible? This is the deciding factor. Otherwise you are correct a 13 would accomplish this alone
What payments would have to be made for those 3 years if we then file a 13 is debt was discharged in the 7.
The monthly payment on the 13 plan would likely be the same regardless of whether you file a 13 or a 7 than a 13. Your payment would not be reduced because you are not under a 100% plan
Ellen
Ellen, Attorney
Category: Bankruptcy Law
Satisfied Customers: 36,714
Experience: Bankruptcy Lawyer. Experienced.
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