The HOUSE: Keep it, Sell it, Give it back...?!?

[MOMof3]

We are 6 months into our confirmed chapter 13 plan. The plan pays 0% to unsecured. Basically the plan is our mortgage payment, arrears on mortgage, my car & trustee fees. We did the 13 to save the house. Hubby & both make good money & the plan works for us---the catcher is that I just had my 3rd child in April and I am HATING trying to find daycare for her & want to quit my job . I'm wondering since we are in this plan for the house, if we were to SELL the house, what happens. Our home exemption was 30K--equity is probably higher, but we would need to put some $$ into the home to sell it. Would we then be able to convert to 7 since mortgage & arrears would be gone--or now would we have too much $$ and have to pay unsecureds? The other issue would be what happens to the proceeds of the sale? If the money goes to secureds first, then priority (taxes & student loans), then I'm fine w/walking away with having equity paid towards those things. If I end up paying my unsecured creditors, then I wouldn't want to do it. Do we get to keep any of the proceeds ourselves to put towards a new place--which would be rented but need $$ for first/last/dep, etc... Yikes!

Thanks!!

[HHM]

Welcome to the forum

To help you sort out this issue, I have some questions first, and a few comments?

1. Did you actually have unsecured debt when you filed, if yes, how much? (it sounds like you did, but how much?)
1a. What other debt do you have, and how much (you mention taxes & student loans, what taxes are we talking about?)

2. You could only convert to 7 if you qualify for a 7, you say that both your and your husband make good money, so odds are, w/o more info, you probably could not file chapter 7. (i.e. are you over the median income for your state, etc).

3. What is the "HATING" to find daycare, is this a personal issue (i.e. you don't want to put your child in day care, or a financial issue). If its a "personal" issue with daycare, you may need to suck-it-up and face the reality of your financial situation.

4. Also, in today's real estate market, selling a home is a difficult proposition and you may not want to pin your financial future on such an uncertain and contingent event.

5. What percent of your Monthly GROSS income is your current mortgage payment.

6. When you filed chapter 13, how many months behind were you on your mortgage and what was the reason for falling behind?

[MOMof3]

Welcome to the forum : Thanks! I've been a lurker for some time now!
To help you sort out this issue, I have some questions first, and a few comments?

1. Did you actually have unsecured debt when you filed, if yes, how much? (it sounds like you did, but how much?)Unsecured = approx 75K
1a. What other debt do you have, and how much (you mention taxes & student loans, what taxes are we talking about?)
IRS = 6200, Student Loan 65K

2. You could only convert to 7 if you qualify for a 7, you say that both your and your husband make good money, so odds are, w/o more info, you probably could not file chapter 7. (i.e. are you over the median income for your state, etc).
We are in WA, we are over median, but failed means test. Our plan was confirmed w/zero to unsecured creditors.

3. What is the "HATING" to find daycare, is this a personal issue (i.e. you don't want to put your child in day care, or a financial issue). If its a "personal" issue with daycare, you may need to suck-it-up and face the reality of your financial situation.
Good Question! It is personal & financial. Daycare for an infant runs between 175-200/wk. This cost was factored into our plan along with my working F/T. I didn't have to daycare w/my older two kids, so that is where the personal side of it comes to play.
4. Also, in today's real estate market, selling a home is a difficult proposition and you may not want to pin your financial future on such an uncertain and contingent event.
We are lucky that we are in a good market where we live, I think we could sell easily as long as we did minor repairs/touch ups.
5. What percent of your Monthly GROSS income is your current mortgage payment.
Yikes! 26% including taxes/insurance

6. When you filed chapter 13, how many months behind were you on your mortgage and what was the reason for falling behind?
approx. 3 months behind, arrears is 7K in plan. We fell behind because hubby tried to start new business, it failed and now he is back to working for someone else

I hope this helps. I really just want to get out of the house if possible so I don't have to work.

[MOMof3]

Anyone know what happens if we decide to sell?

[HHM]

Ok, let's take a look here...since you are in an active chapter 13, you would have to get the trustee's permission to sell you home.

The proceeds of sale is tricky, obviously the mortgage bank gets their money, as does the real estate agent and anyone else that gets paid as part of the cost of sale to the house. To find out what happens to your equity (assuming that when you sell it, you would actually get some money), you would need to speak with an attorney. In many districts, your home equity stays exempt when its converted to cash, ONLY IF that money is going to be used to purchase another home. This question is one we can't really answer for you on this board. But recognize the problem, you are taking an exempt asset (home equity) and converting it to cash (which is normally not exempt), so unless your district has case law holding that your home equity maintains its exemption when converted to cash, you could have some problems.

26% of income as mortgage payment is not bad (actually, anymore, that is pretty good, most people are paying 30-35%, but the goal is to pay no more than 25%).

If your over the median, and try to convert (with a sold house, odds are, this will decrease your housing expense), you will probably run into some trouble getting into a chapter 7.