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Take Loan Against Home or File Chap 13?

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  • Take Loan Against Home or File Chap 13?

    Originally posted by despritfreya View Post
    For the purpose of Chapter 7 reconciliation in reorganization cases, such may depend upon where you are filing. For example, in Arizona cost of sale is typically not considered in the context of a Chapter 13 but is considered in the context of a Chapter 11.

    As it relates to a Chapter 7 the debtor's opinion is not very relevant. If the debtor calculates $x non exempt value but the Trustee thinks it's $y you can bet the Trustee's value is going to rule the roost. The end game is whether or not the Trustee thinks he/she can sell the asset, pay the debtor the allowed exemption, pay himself and then have anything left over for unsecured creditors. If the Trustee thinks the answer is "yes" he/she will try to sell the asset regardless of what the debtor says or thinks the value is.

    Des.
    If this is the case, I wonder if putting my house up as collateral on a loan to just pay the creditors of would be the smarter choice. As of right now, I'm not late on anything, but with my wife having to quit her job for medical reasons, we can no longer afford to pay the credit card bills.
    I thought that filling a chapter 13 would save our house, but if what you say is true, it really isn't.
    I own my car and house outright, so to take a loan on the house, I cold afford the monthly payment, and just pay the creditors off.
    The more I read on this site, the worse chapter 13 sounds...
    I could just turn my back on the credit card companies, but my values won't allow that.

  • #2
    Originally posted by KYRanger View Post
    The more I read on this site, the worse chapter 13 sounds...
    A Chapter 13 is a voluntary reorganization chapter of bankruptcy. It is the best when used for specific reasons. The biggest reason is to save property as only a Chapter 13 (or Chapter 11) can do that. If you're not trying to save property (behind in payments on home, car, taxes) then a Chapter 13 is typically not optimal but may be the only choice.

    A Chapter 13 is all about budgeting and history has shown that at least 70% of people who enter a Chapter 13 can't, won't, or refuse to budget in a Chapter 13. Life happens and a Chapter 13 can be daunting simply because of hiccups and "reality." But, alas, there is nothing else that will save property and guarantee an outcome (discharge) should you survive life's challenges during the Chapter 13's period.

    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


    • #3
      KYRanger

      I have not read your previous posts so I do not know your situation. Chapter 13 serves its purpose and is not something to be afraid of. It allows you to keep non exempt property. It allows you to save a home you are behind on. It allows you to save a vehicle you are behind on. It allows you to force a repayment plan upon the government for payment of back taxes. It allows you to do so many things. It is not "easy" - nothing in life ever is "easy".

      From your post above you are thinking about taking out a loan against your home to pay off your debt. How much debt are we talking about? How much is your home worth?

      You are in a unique position in that you have an asset that presumably has substantial value and has no lien against it. As of now, mortgage interest is a tax deduction therefore using the home to pay off debt may not be a bad thing. The problem is that many folks who do this simply have not learned their lesson and once the credit cards are paid off, run them up again.

      It sounds like you need to sit down with a well qualified financial planner, look at the benefits of paying off your existing debt by taking out a small mortgage against the home and then get yourself on a budget that allows you to live within your means (reduced income due to your wife having to leave work) without running up credit card debt. My motto has always been. . . "if you can't pay cash then don't buy it". You have no car payment. Keep it that way. A small mortgage payment may be manageable and, hopefully, you have health insurance that will cover most of your wife's issues. Everything else should be paid for with cash - no credit cards or loans.

      Des.

      Comment


      • #4
        Originally posted by despritfreya View Post
        KYRanger
        I have not read your previous posts so I do not know your situation. Chapter 13 serves its purpose and is not something to be afraid of. It allows you to keep non exempt property. It allows you to save a home you are behind on. It allows you to save a vehicle you are behind on. It allows you to force a repayment plan upon the government for payment of back taxes. It allows you to do so many things. It is not "easy" - nothing in life ever is "easy".
        From your post above you are thinking about taking out a loan against your home to pay off your debt. How much debt are we talking about? How much is your home worth?
        You are in a unique position in that you have an asset that presumably has substantial value and has no lien against it. As of now, mortgage interest is a tax deduction therefore using the home to pay off debt may not be a bad thing. The problem is that many folks who do this simply have not learned their lesson and once the credit cards are paid off, run them up again.
        It sounds like you need to sit down with a well qualified financial planner, look at the benefits of paying off your existing debt by taking out a small mortgage against the home and then get yourself on a budget that allows you to live within your means (reduced income due to your wife having to leave work) without running up credit card debt. My motto has always been. . . "if you can't pay cash then don't buy it". You have no car payment. Keep it that way. A small mortgage payment may be manageable and, hopefully, you have health insurance that will cover most of your wife's issues. Everything else should be paid for with cash - no credit cards or loans.
        Des.
        We're looking at $22k in credit debt. Our house is free and clear. It's value is around $65k. The reason I have it paid off is because I became disabled in 2006, and paid for it through my disability settlement.
        While I really don't want to put a mortgage on it, I also don't want to lose it, it's all I have...
        I own a car free of any liens, and it's worth around $20k. I need it to get to my doctors appointments, and cant afford to lose it either.
        I've been told over and over that in a chapter 13 I won't lose anything, that the trustee sets up repayment with the creditors, and as long as I make the payment to the trustee on time each month, all will be fine.
        If that's true then great! But... I keep hearing these stories in here where if the trustee wants, they can force me to sell everything if he or she so sees fit.
        If that's the case, then I need to get to the bank and try to take out a loan for the $22k using our house as collateral.
        I guess I just need reassurance that while in a chapter 13, as long as the payments are made on time, our house and car are protected.
        I'm 54, disabled, and don't want to have to start again...
        Some might think I'm being a snob, but I'm just wanting to save what little in life I have left. This day in time, $65k value on a house isn't much at all. In fact, some might have a house worth $200k, and have $80k in equity, but they shouldn't have to sell their house over a life changing event.
        Everything was going fine, until my wife had to quit her job over health issues. So now here we sit, thinking that a chapter 13 will save us, only to read the horror stories that if the trustee decided they can make a dime, they'll force the debtor to sell their home.
        My nerves are just shot right now and I'm grabbing at any hope for the future.

        Comment


        • #5
          Hi, KYRanger, I moved your posts and the responses to a new thread because I think your situation should be a separate discussion from the original topic.

          In a Chapter 13, the trustee does not liquidate assets. It is not part of a Chap 13 trustees' job. A Chap 13 will protect your assets as long as you make payments.

          Whether to take a loan to pay off the debt or file Chap 13 is a difficult decision. You need to look at the financial costs of each. Also, keep in mind that if your situation gets worse while in a Chap 13, the plan can be adjusted. A Chap 13 is also voluntary and you can have it dismissed at any time. Assuming it is no more expensive in the long run to file Chap 13 when including trustee commission and attorney fees, the biggest downside to Chap 13 is its effect on your credit report. But, that should be the last thing you consider in making your decision, IMO.

          ETA: The payment on a $22,000 15 year mortgage is pretty low. But, you'd end up paying back a lot more in interest while in a Chap 13, you would pay no interest on unsecured debt.
          Last edited by LadyInTheRed; 08-11-2017, 07:05 PM.
          LadyInTheRed is in the black!
          Filed Chap 13 April 2010. Discharged May 2015.
          $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

          Comment


          • #6
            KYRanger, you are reading stories about a Chapter 7. Big difference.

            Comment


            • #7
              Originally posted by LadyInTheRed View Post
              Hi, KYRanger, I moved your posts and the responses to a new thread because I think your situation should be a separate discussion from the original topic.

              In a Chapter 13, the trustee does not liquidate assets. It is not part of a Chap 13 trustees' job. A Chap 13 will protect your assets as long as you make payments.

              Whether to take a loan to pay off the debt or file Chap 13 is a difficult decision. You need to look at the financial costs of each. Also, keep in mind that if your situation gets worse while in a Chap 13, the plan can be adjusted. A Chap 13 is also voluntary and you can have it dismissed at any time. Assuming it is no more expensive in the long run to file Chap 13 when including trustee commission and attorney fees, the biggest downside to Chap 13 is its effect on your credit report. But, that should be the last thing you consider in making your decision, IMO.

              ETA: The payment on a $22,000 15 year mortgage is pretty low. But, you'd end up paying back a lot more in interest while in a Chap 13, you would pay no interest on unsecured debt.
              OMG! Thank you so much for the clarification! Right now I'm just spiraling all over the place!
              The attorney I'm talking to has done allot to console me and my wife as to what will happen. It's one of those things that people just don't want to talk about. It's a shameful thing that is to be kept secret.
              I didn't intentionally do this! It's something that just happens to good, decent people. I'm so sorry I'm rambling on, and I'm also sorry I posted this in the wrong place.
              Trust me, Y'all will go through this step by step with me. So at the other end you can see just what happens in a chapter 13.
              I talked to my attorney today, and he explained allot that I was thinking about.

              Just as you stated, A large loan on my house entails all kinds of issues by themselves. This is something the attorney explained to me as well. That if I get the loan, it'll most likely be 15 years minimum, entail interest rates, closing costs, higher insurance rates, because mortgage insurance is much different than home owners insurance, and must be maintained. during the loan.
              I'll still have to get an assessment on the property value, and most banks will also require an inspection of the home, which is even more money.
              A chapter 13 entails much less, and although there is the attorney and trustee fees, it's much less than all that entails a mortgage, and the bankruptcy only lasts a maximum of 5 years, not 15.
              I started this in a panic, but I'm calmed down now.
              This forum has been a Godsend to my wife and I. I thank you for having patients with me and my posts. I mean no ill intent, I'm just in a state of mind right now that makes it difficult to be rational sometimes.
              Another downside to a mortgage is the fact that because I've maxed out my credit cards, my credit rating is so low at this time I'd be lucky to get any kind of loan, and if I did, the interest rate would be astronomical.
              I'm sure I'm not the first to have such questions. I'm just not savvy enough to post them in the correct places, LOL!
              I know there's a light at the end of this tunnel. And thanks to awesome people like Y'all, I know things will be OK.

              Comment


              • #8
                Originally posted by Chrysalis View Post
                KYRanger, you are reading stories about a Chapter 7. Big difference.
                Thanks for the kick back to reality!
                I just had a really bad day. Since my post I had a really long, and eye opening talk with y attorney.
                Things will get better, and I feel better now. Thanks again!

                Comment


                • #9
                  KYRanger , you have absolutely nothing to apologize for.

                  I am glad you are making sense of things. It sounds like you have a good attorney who is giving you good advice about your options.
                  LadyInTheRed is in the black!
                  Filed Chap 13 April 2010. Discharged May 2015.
                  $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

                  Comment


                  • #10
                    Originally posted by LadyInTheRed View Post
                    KYRanger , you have absolutely nothing to apologize for.

                    I am glad you are making sense of things. It sounds like you have a good attorney who is giving you good advice about your options.
                    Thanks for understanding.
                    This is one of the most stress inducing things a person can go through.
                    Not THE most, but up there in the top 5...
                    When I became disabled in 2006, it was horribly stressful, and still is, 11 years later.
                    Thank God once this gets going my wife and I will be done with it in 4~5 years.
                    I also can't wait to get moving on this, so I can turn the ringer on my phone back on... 😉

                    Comment

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