Chapter 13 Refinance Question

[Jman30]

Hello! Thanks for running this great site, it has been a huge help for my wife and myself.

I am coming up on my one year "anniversary" of filing my Chapter 13 on December 19th 2005. I want to do a buy-out as quickly as possible as I have enough equity in the house to refinance and pay off the mortgage and the Chap 13. I still have the same job as I did when we bought the house 3 years ago, so income is not a problem.

A lender I spoke with several weeks ago suggested I wait until the 12 month mark of filing (which will be Dec 19) before attempting to refinance. She said my score should increase after 1 year of on-time Chap 13 payments and most lenders want to see at least 12 months of payments anyway. I am not too concerned about the mortgage interest rate at this point, I just want to refinance and get out of the Chapter 13 and get my full paycheck back as quickly as possible. Basically, I am willing to trade a higher interest rate to get out of the Chap 13 as quickly as possible. Currently, I pay 10.35% anyway!

Can you shed any of your insight or experience into my odds of successfully refinancing in Decemeber? Is she just pulling my leg trying to get a commission or do I really have a chance of doing a Chapter 13 buyout after one year?

Thanks so much in advance for your help.

[StaciMM]

Does your plan included unsecured debt? My understanding is that you cannot get out of your 13 before 36 months unless the unsecured is paid at 100%. So, you can't finish early just by paying the remaining 24 (or however many you have remaining) payments-you have to pay full balances to unsecured creditors or keep going in the plan.

[HHM]

Staci is exactly right, if you want out of the plan early, you will have to pay 100% of what you owed to your unsecured creditors at the time of filing your chapter 13 + interest, but minus any payments the trustee has made.

For most people, it makes little sense to buyout a chapter 13 early, but that really depends on the type of claims you have, how much your payment is, etc etc.

[Jman30]

I figured I had to pay 100%. It is a balancing act, really. My mortgage is included in my chapter 13 payment (1,475) on top of my actual chap 13 payment ($550). My take home pay is, obviously, severely reduced with this amount of money coming out of my check. I think it would be difficult to keep my family afloat (we have 4 year old and a 4 month old) with my reduced pay. It is almost worth it to pay the 100% (it is only around $38,000). I know it makes more sense to only pay the 11% over three years, but I would really like to get out of this chap 13 as quickly as possible and move on with my life....and get my paycheck back!!!!

[HHM]

Incidently, why are you having the trustee pay your mortgage. You didn't need to do that.

First issue: if you are having problems making ends meet...you need to reevaluate your life style and spending habits, there is no way around that.

You should really think long term on this.
You have $38,000 in unsecured debt (quick question, if your paying $550 per month, but only 11% is going to unsecured ($4,180), what other claims are being paid, because $550 x 36 is $19,800. I can only assume there was some mortgage arrears or a cramdown on a car???

If your house can be sold and you can pay $38,000 to unsecured creditors, without a problem, that situation will probably still exist 2 years from now when you complete the plan. If that is the case, think of hte opportunity cost, what better uses of that money could be made then paying back creditors. Also, if you sell now to pay off the plan think about how much you would have to save to have that same $38,000 in two years, You should have to put away $1,583 per month over the next 24 months to have that same money in 2 years. Unless you can afford such a savings plan, I would say you should stay in the plan.

Really, it makes no financial sense. However, if your situation is such that you simply have too much house for your income, that decision should really have been made before filing chapter 13.

You may want to consider amending your plan. If your having short-term short falls in income vs. expenses, you may want to tinker with your expenses and file an amended play to reduce your payment. But whether you can or now will depend on the mandatory claims that must be paid in the plan.

If you can, stay the course, don't make a bad long term decision for short term goal.

[Jman30]

HHM,

I see what you are saying completely. Rationally, I know it makes NO sense to try to do a buyout. Why pay 100% to the creditors when I can only pay 11% and be done with it in 24 more months, right?

The reason that my mortgage is included in the Chap 13 payments is because I was in arrears by ONE month, so they filed to have the mortgage put in the plan. I was pretty peeved at the time, but it made everything easier in the end as everthing is now handled through the Trustee.

I may be off on the total amount owed, I am not sure it is exactly $38,000 and I think the percentage may be a little more than 11%. I haven't looked at the paperwork in months - once it was finalized in the courts, I filed it away and have't gone through it again. I am pulling those numbers from memory and I must be wrong somewhere. My total payment is $2,275 per month, which includes $1,475 for the mortgage, $550 regular Chapter 13 payment and the Trustee Fee, lawyer fee, etc for approx $200.

When we bought the house 3 years ago, it was easily affordable and we obviously did not forsee a Chapter 13 in our future. It is tough going from taking home almost $3,000 per month to only $550. My wife works part time and we make enough to keep the house going....it is just soooooooo tempting to get out of the Chapter 13 and be done with this whole experience.

But I know that is not the smartest course of action. Thanks for your help.