File Now or Later?? LOOONG, Sorry!

[ChescoChris]

So here is the scoop and any advice would be appreciated!

I was in a bad LTR for about 10 yrs (not married) which resulted in tons of secured and unsecured debt. About 4 years ago, rather than filing for BK, we took out a 125 loan on the house.

About a year ago, we broke up. He wanted to keep the house and in February, it appraised exactly at the amount owed. Due to the mortgage market though, he was unable to get financing and now has someone else living with him apparently helping to make the payments. My parents helped me purchase another home and are on the mortgage with me but I ended up with about 30k in unsecured debt and $20k in a 401k loan. I can afford to make the payments on my debt (barely). I make too much to file for chap 7 and trustee payments are likely to be about the same or more as they are now as they would be under chap 13 so there is currently no benefit to filing.

However, he is currently making the payments on the old house on time but they actually exceed his income so it has to end badly eventually. Also, if I allow this to go on for over 3 years, I will be forced to pay capital gains. Since values in the area have dropped, it is likely that we owe much more than it is actually worth now. Since our loan was not purchase money, the bank will come after us for any deficiency. An added deficiency payment will topple my precarious budget. It is also possible that he could work something out with the mortgage company (I believe he also has family living there now as well to help with the payments) and that it will never foreclose. Somehow, they have been maintaining the house and he even bought a new car so there is money coming from somewhere.

He is kind of crazy so I havent talked to him for about 8 months (drug and other issues).

So here are my options:

File now, include the house which is current so hopefully the deficiency will not be added to my secured debt.

Wait and hopefully, he will eventually refi -- the risk (in addition to him making timely payments) is that the market will not turn around in the next two years and the deficiency will grow.

I can always file a quit claim deed to get out of the tax issue but dont want to do it until closer to when I have to otherwise, I'll lose leverage. I know this does not handle the mortgage issue.

I've spoken to a lawyer who agreed that these are basically my options. I dont know which scares me more-- the prospect of a 60mo BK payment or having to deal with another debt added to my list (meaning the possible deficiency).

Any thoughts would be VERY welcome. Thanks, ches

[Skouris]

Your case sounds complicated, and I don't really have any advice. The only thing I am wondering is... When you said that you can afford to make the payments on your debt, did you mean the minimum payments? If so, you must realize that it will take a very very long time to pay off 30K in unsecured debt. That is one of the advantages of Chapter 13. It may be a difficult five years, but when it's over it's over. No more credit card debt. I struggled to make the minimum payments on my credit cards for years. Since all of my money went to making the minimum payments, I didn't have enough left to live on and the credit cards kept going up. I finally ended up filing on about 32K of debt. Luckily I filed under the old law and got a 36-month plan at 39%. All of my creditors are now paid and I am awaiting discharge. It's a good feeling to get a fresh start. For me it was definitely worth it.

[ChescoChris]

Thank you Skouris!

No, I structured the debt in unsecured, installment loans so it would be paid in 5-6 years. Very little is left on revolving accounts. Its tight but I am managing.

I was fortunate that when I left him, I got a much higher paying job with enough income to pay the debts. On the flip side, I had to leave everything (furniture, all household goods) to get away when I left him so I wracked up another $8k. I am resettled now and not creating any more debt but am not sure which is the lesser of 2 evils-- a 5 year ch 13 plan or X years of not knowing what will happen with the old house.

Frustrating!!!!

[Minnymouth]

Is your name on the property/home and on the mortgage loan?

If so, the sooner you get off all of this the better off you will be.
You can ask him to buy you out by refinancing if he wants to keep the home/property.

Personally, I wouldn't want this to continue hanging over my head in the future. Its hard enough just surviving these days and this issue could jeapordize your future financially if you don't get it straightened out.

What does your lawyer say.........??

[ChescoChris]

Yes, my name is on both the mortgage and the deed.

Lawyer said my call-- options are Chapter 13 and let it go or wait another year and see what happens.

Benefit to filing now is just getting it over with and there may be no difficiency claim filed by the mortgage cos since the payments are up to date. BUT it may also force him to consider bankruptcy too and speed up the process.

The benefit to waiting is there is always a possibility that he will continue to make the payments until the property increases in value so he can refi.

We don't talk. I made payments, including half the utilities for six months after I moved out. I talked with the mortgage companies and wrote up a list of options. Back then, a short sale was possible since the value was so close to the debt. Probably not now. Jerk should have listened to me then.

BTW Minny, I was reading through your old posts-- did you ever file suit against the lawyer and trustee?? Unbelievable story!!

I love this site-- my financial stuff doesnt all seem so scary anymore since I know there are others in the same boat!!

[SinkingFast]

A Quit Claim Deed will take your name off the Deed, but you're still on the hook with the Lender. A Quit Claim Deed will not relieve you of your financial responsibility to the mortgage lender. He would have refinance the house to get you out from under this liability the "traditional" way.

Many States do not allow for Mortgage Lenders to seek Judgements for a Deficiency Balance on a house. Are you sure you live in a State that does allow the Lender to pursue a Deficiency Balance??

If you surrender your interest in the house in BK, you should no longer be responsible for what happens with the loan. The Lender should automatically look to your former SO for what's due.

IF your former SO were to default, any deficiency balance becomes Unsecured debt, just like a CC. That Lender would not be given priority over other Creditors. Seems like,......... If you include the mortgage in your BK and your former SO defaults,....... Even if your former SO defaults while you're in BK, the Lender would have had to file their Claim at the start like all other Creditors, or they'd get nothing. And at the end of your BK Plan, you would have Discharged your liability to the mortgage Lender anyway.

[busbis]

my husband and I haven't filed yet either for the fear of our credit really going down the drain. The main reason we are leaning toward the filing the 13 (we make too much money for a 7) is that we are in the same situation on 2 homes we have. We made a bad investment and got caught up in the housing bubble that crashed. When I spoke to an atty, he advised me that we could surrender both homes in the chp 13 and still pay everything else as we normally would. Of course it would be through the bankruptcy courts but we are wanting to pay everything else and hopefully get an early discharge. The attorney basically gave me 3 options...
1. a deed in lieu (the mtg company has no interest because I have never been late)

2. foreclose, but then I am responsible for any defiency balance or they can send me a 1099 for the difference

3. Surrender through a chp 13.

The main reason I would want an early discharge is so that if or when they sell the homes I guess from what I read they could come back and add the defiency as a claim in the bk. I'm not sure about that 100% nor did the attorney tell me yet. I have not filed yet. I am trying to get all my ducks in a row first. But I do agree with everyone else. I have lost a lot of sleepless nights thinking about this and have come to the conclusion that bk is my best option. I know that once it is discharged I can start fresh again and put all this other stuff behind me.

Please keep us posted on what you decide. This forum has really shed light on how things work and makes me realize I'm not the only one out their facing difficulties. It also made me feel better to know how many people have actually filed and got back on their feet again.

Good luck at what ever you decide.

[ChescoChris]

Yes, I make too much for a chapter 7 as well-- I find that very ironic. I have been having the same credit fears and sleepless nights too and honestly, I'm getting very tired of them.

I am leaning towards filing for bankruptcy as well. BUT, I may wait until January -- I am thinking that I need to get a better handle on how much my expenses will be in this house (in it for about 4 months). As a single, higher income filer, I am concerned that without documentation, I am going to get hit with a really high payment.

In the meantime, I will probably continue obsessively reading the boards-- it helps to know there are other good people who fell into a bad situation!!