Ch 7 or Ch 13?

[Forza42]

Hi! I am new here and don't know all of the terms yet. I'd like to tell you our situation and see if you have any advice for me.

My husbands overtime was cut in January. He now makes half of what he used to. We can no longer pay the credit card bills ($20K). We decided to file for bankruptcy not only for the credit cards, but because we have a $100,000 HELOC with B of A. We owe $240,000 on the house, but it's only worth about $190,000. We are current on our first mortgage and would like to keep our house.

We expected to file for ch 7, but didn't know it wouldn't wipe put the HELOC. So we wanted to do ch 13. At first we were told we would only have to pay $300/month for 3 years. Someone at my husbands job quit, so he is temporarily getting OT again. So now lawyer is saying we may have to pay $500/month for 5 years. There is no way we could afford that once the OT is gone again (we are a family of 6). Why can't the lawyer give us an exact amount on the payment? Worried we won't even qualify for Ch 7 if the OT keeps up much longer.

First question, how hard is it to get rid of the HELOC if we do a Ch 7?

Second question, our car is worth $20K. My parents paid for 3/4 of it. They are not happy about us having to sell it and spend the $. Is there anything they can do to get their money back on the car? The car is in my name. Thanks so much for your time!

[HHM]

You won't be able to get rid of the HELOC "within" the chapter 7 bankruptcy, there is simply no mechanism to do so. What people are doing is filing chapter 7, and then attempting to settle with their 2nd mortgages or HELOC's. If the house is totally underwater, typically settlements are in the range of 10% of the balance owed on the HELOC but must usually be paid as a lump sum. However, there is no guarantee, the HELOC need not settle.

As for the monthly payment, ultimately, the payment will be determined by a negotiation between your attorney and the chapter 13 trustee, that is why you cannot get an "exact" number.

[Pandora]

Second question, our car is worth $20K. My parents paid for 3/4 of it. They are not happy about us having to sell it and spend the $. Is there anything they can do to get their money back on the car? The car is in my name. Thanks so much for your time!

Why are you selling your car? Before you do so, check with your attorney as it could be viewed as preferential payment if you pay anyone off, especially your parents (insider issue). The trustee will merely take the money back from your parents if you give it to them.

What are your exemptions?

[TheBajan]

Hi! I am new here and don't know all of the terms yet. I'd like to tell you our situation and see if you have any advice for me.

My husbands overtime was cut in January. He now makes half of what he used to. We can no longer pay the credit card bills ($20K). We decided to file for bankruptcy not only for the credit cards, but because we have a $100,000 HELOC with B of A. We owe $240,000 on the house, but it's only worth about $190,000. We are current on our first mortgage and would like to keep our house.

We expected to file for ch 7, but didn't know it wouldn't wipe put the HELOC. So we wanted to do ch 13. At first we were told we would only have to pay $300/month for 3 years. Someone at my husbands job quit, so he is temporarily getting OT again. So now lawyer is saying we may have to pay $500/month for 5 years. There is no way we could afford that once the OT is gone again (we are a family of 6). Why can't the lawyer give us an exact amount on the payment? Worried we won't even qualify for Ch 7 if the OT keeps up much longer.

First question, how hard is it to get rid of the HELOC if we do a Ch 7?

Second question, our car is worth $20K. My parents paid for 3/4 of it. They are not happy about us having to sell it and spend the $. Is there anything they can do to get their money back on the car? The car is in my name. Thanks so much for your time!

It sounds like you won't be able to discharge the HELOC in either a 7 or a 13. If I understand you correctly, you owe $140 on your first mortgage and $100 on your HELOC. Your house is worth $190. In order to strip the HELOC in a 13, your house has to be worth less than what you owe on the first mortgage. Please forgive me if I'm misunderstanding your situation.

Regarding the car, HHM is correct. You should reconsider selling it as the trustee will wonder why you did and what happened to the money.

[keepsmiling]

If you can stack exemptions in your state, your car may be ok, since you have no equity in your house.
Do be sure that you aren't overvaluing it, and this is def something to discuss in a free consult with an attorney.

[ValleYum]

Your parents paid for 3/4 of your car - is the other 1/4 paid in full or are you still making a car payment?? Are you absolutely sure it is worth 20k? It may be worthwhile to take it to a CarMax to get a free appraisal from them if you have a ding or anything that an online valuation can't 'see' when valuing the vehicle. In this case the lower the value the better for you guys.

Arizona can't stack that I can see, KS. But it does say they can double - can a couple double on only 1 car in Arizona?



From: http://www.legalconsumer.com/bankrup...hp?ST=AZ#other

They can have 6 months of 'fuel' and food. So they can prepay their power/gas bill for 6 months and stock their pantry with food, right (I guess you'd use the National Standards to get the $ amount per month?)?

I wonder if they can use the prepaid rent/deposit in lieu of homestead exemption to prepay their 1st mortgage (doubled since they are both filing)?

I am full of questions... LOL

EDIT TO ADD: Like the others said above, there is no such thing as 'getting rid of' your HELOC in a Chapter 7. You won't be financially responsible for it after you are discharged, but if you don't pay it or make an agreement to settle it (to remove their lien), the HELOC lender can foreclose to attempt to get their money at any point down the road even if you are making your 1st mortgage payments on time.

And like the others said above, you can't strip the 2nd in a Chapter 13 because it appears that the HELOC is not fully underwater - looks like $50k is underwater and $50k isn't from the home value you gave above.

So, I edited to ask you: Where did you get the value of your home? If you got it from Zillow, it may be worth it to ask a local Realtor to do a Comparable Market Analysis (CMA) - some do them for free some charge $25 or so - to get a better value of your home. Our CMA stated our home was worth $25k LESS than what Zillow stated.

[despritfreya]

I was asked to look at your thread and comment on it. You have gotten some good information so I am just going to try to clarify a few points.

1. All are correct. You cannot strip off the 2nd in a 7.

2. All are correct. To strip off the 2nd in a 13 you must be completely underwater after consideration of the 1st. If there is even 1 penny of equity in the property after “payment” of the 1st, no strip off if the property is your principal residence and the lender does not have additional collateral.

3. If you are filing a 13 there is NO REASON to sell the vehicle. First, I will assume it is the only vehicle you and your husband have that has equity. Second, I will assume that there is no lien on it.

You are entitled to a $5k exemption in a vehicle and your spouse is entitled to a $5k exemption in a different vehicle OR you and your husband are entitled to a $10k exemption in a single vehicle. Therefore, if you combine your exemptions into this one car you have a $20k asset that has non-exempt value of $10k. To keep the vehicle in the Chapter 13, you simply have to agree to pay your unsecured creditors approximately $10k over the life of your Plan.

4. As it relates to your parents, assuming they loaned you the $$, because they did not put a lien on the title AT THE TIME OF ITS PURCHASE, they are unsecured creditors in your case and should be listed on Schedule F. They should file a proof of claim for what is owed. That way, they can share in the $10k you will be paying to your creditors. Under no circumstances should you pay your parents outside of the bk. In fact, if you have paid them any $$ for the loan over the past 12 months such payments must be disclosed on your Statement of Financial Affairs and must be accounted for as “preferential” through the Plan. Discuss this with your attny.

5. You indicate that your attny is telling you that you must be in your chapter 13 for 5 years. This may mean that you are over median income for a family of 6. Median income is currently $76,267.00 for your family size. This means that in the 6 full months before filing your average GROSS monthly earnings exceeded $6,355.58/month. Is that what happened?

6. You indicate that your attny is stating your Plan payment must be $500.00/month. Is that because you can “afford” that amount based upon Schedule I and J (including that overtime on Schedule I)? Or, is it because you need to kick into your case $30,000.00 over 5 years to pay what needs to be paid, including the value of your non-exempt assets, legal fees, taxes, trustee’s fees, etc? Please elaborate further.

Lastly, I see that you have not responded to any of the comments. Please do. We are here to help you understand the process and try to shed light on things that may not be clear to you. Don’t be bashful.

Des.

[SMinGA2]

There is one key factor that determines if you have the option of a 3 year plan or MUST do a 5 year plan: your gross income for the 6 months prior to filing. Such as if you file in July, then your income (check dates, not earning dates) from Jan-June are averaged out. If the amount is above the median income for your state & family size, you must do a 5 year plan. If below, you might be able to do a 3 year plan.

If you have the option of a 3 year plan (due to being below the median income) then it becomes a question of whether or not you have enough DMI to pay in for 3 years & make a feasible plan. As has been explained - the worst case scenario on your car is that you'll have $10,000 of non-exempt equity. Meaning if there are no other requirements, then your plan will need to cover $10,000 to unsecured creditors + attorney fees + trustee fee. The trustee fee is 5-10% of your payment, depending on district. So if you pay $300 x 36 and take away 10% (trustee may be less, but this is an example) then that leaves only $9720 for attorney fees & debt payments. That would not be enough if you need to pay $10,000 to unsecured. You'd need to find a way to pay in more per month and/or for more months.

There may be other things that must be paid in your plan. If you're behind on your mortgage then the arrears must be paid in full - and that would not count in this $10,000 example to go to unsecured creditors. Discuss with your attorney so you understand exactly what MUST be paid, and how the attorney is determining the minimum amount you need to pay in to make a valid plan.

Is there any reason to file ASAP? Are you facing foreclosure, repossession or a judgment from any creditor? If not - then perhaps you should discuss waiting with your attorney. Waiting until the overtime stabilizes. Once that happens, calculate income for each month to see how close you are to median. If November '11 - April '12 have you slightly over median, perhaps filing in July (and using Jan-Jun '12) would be below median. Use money now in ways that can help your bankruptcy case. You would not want to use it to create non-exempt assets. But use it on things that would be exempt. Like stocking up on groceries, taking care of household repairs, or setting $ aside to pay your attorney in full before filing.

[Forza42]

Wow! I thought I would get an e-mail for each response, sorry it took me so long! First of all, thank you sooo much for your responses. I will try and answer best I can. Again, I am not familiar with some of the terms

We are underwater on our first mortgage. We owe $240K, it is worth $190K. The mortgage payment has never been late.

My question about the car was if we filed ch 7. We would really like to file for ch 13 so that we don't have to worry about the car and get the HELOC taken care of.

When we went to the attorney and showed him our paychecks, he said we would probably only pay $300/month for 3 years. At the next visit, I mentioned the overtime will be back for a little while, and that's when he told me we would now have to pay $500/month for 5 years. If my husband stays at 40 hours/week, there is no possible way we could afford the $500/month. Des asked if our gross monthly earning over the last 6 months was over $6355.58/month. I just did some quick math, and we came really close. I will have to sit down with all the pay stubs and figure that out. Thanks for doing the math for me! The thing that stinks is that both of our bonuses will be in that figure

The reason I don't want to wait is because the overtime could go back up in little while. My husband has been told many times that he can't get anymore overtime, but then it goes back to normal in a few weeks. Well this time it has lasted 4 months. The only reason he's getting overtime now is because he's doing 2 people's job. When the company hires another person, his overtime will be gone. So we wanted to file bankruptcy now so that we have these 4 bad months in there when figuring out income. We have been living off our tax return, that's how we are surviving these small paychecks. But now even that is gone. Do they figure the tax return into the payment?

How do I figure out what they will allow a family of 6 for monthly necessities?

Again, thank you all so much for your time and responses!

[despritfreya]

Ok, here’s the deal. If you are filing a 13 and do not live in either Pinal or Pima County you will have one of two trustees. Neither one of them utilizes form 22C to determine what your Plan payment must be. Both want the form filled out correctly but both understand that the form is “backward looking” and not representative of your true income or expenses. If you were getting overtime or will have overtime cut they will take that into consideration when reviewing Schedule I.

If you start out with the ability to pay $x/month and know that your income will drop in 6 months and therefore will only be able to pay $y/month, your Plan can provide for $x for months 1 through 6 and then $y for months 7 through whatever. So long as you explain why you are reducing your payment and, even with that reduction, can pay what needs to be paid, you should be fine.

As to your expenses (Schedule J), both trustees utilize the following guidelines in assessing your “real time” expenses and, while it is out of date, if you can stay within them (at least on paper) you should not have a problem:

http://www.maney13trustee.com/TrusteeExpenseGuidelines2008.9-25-08.pdf

Now, if you are in Pima or Pinal County your 13 Trustee may or may not follow the above. I do not have much experience with her but I can tell you that when we have a case that is filed in Tucson we use the “Phoenix guidelines”. To date we have not had a real issue with her.

Lastly, as has been pointed out, if you can get your six month window at or below an average of $6,355.58 gross/month then you are not required to be in a 60 month Plan.

Des.

[keepsmiling]

My question about the car was if we filed ch 7. We would really like to file for ch 13 so that we don't have to worry about the car and get the HELOC taken care of.

But it won't help with the HELOC.
Strongly suggest you be sure about the values on both of these. Doing a 13 may not be in your best interest. You might be better off buying some insurance or finding another expense to eat up any dmi if you a) haven't overvalued the car and b) can't strip the lien.

[Forza42]

Thanks so much Des!

But it won't help with the HELOC.
Strongly suggest you be sure about the values on both of these. Doing a 13 may not be in your best interest. You might be better off buying some insurance or finding another expense to eat up any dmi if you a) haven't overvalued the car and b) can't strip the lien.

If I file ch 13 it won't take care of the HELOC?

[momofthree]

There may be a bit of a miscommunication here. In the original post you say "we have a $100,000 HELOC with B of A. We owe $240,000 on the house, but it's only worth about $190,000. " This reads as mortgage #1 = $140k, mortgage #2 = $100k. Therefore the second isn't fully unsecured and can't be stripped.

THEN you say in a later post: "We are underwater on our first mortgage. We owe $240K, it is worth $190K." Here, it sounds as though you owe $240k on your first alone, which would indicate that you owe a total of $340k on this house including the 2nd. If this is the case, then the 2nd IS fully unsecured and CAN be stripped.

Please clarify.

[btbeme]

Your parents paid for 3/4 of your car - is the other 1/4 paid in full or are you still making a car payment?? Are you absolutely sure it is worth 20k? It may be worthwhile to take it to a CarMax to get a free appraisal from them if you have a ding or anything that an online valuation can't 'see' when valuing the vehicle. In this case the lower the value the better for you guys.

Arizona can't stack that I can see, KS. But it does say they can double - can a couple double on only 1 car in Arizona?


They can have 6 months of 'fuel' and food. So they can prepay their power/gas bill for 6 months and stock their pantry with food, right (I guess you'd use the National Standards to get the $ amount per month?)?

I wonder if they can use the prepaid rent/deposit in lieu of homestead exemption to prepay their 1st mortgage (doubled since they are both filing)?

I am full of questions... LOL

Some AZ info...this may vary a tiny bit from Trustee to Trustee, but not much...

- Cannot stack on one car. Most Trustees will not allow this in any way. Bummer.
- 6 months food, fuel, provisions - does NOT include prepayment of utilities, gift cards, and such. Stock the pantry and freezer, fill the gas tanks...thats about it. Unless you buy a few cords of wood to cool your house with a roaring fire in the summertime...
- No substitute on the homestead exemption; however, many Trustees see the rent deposit as a necessity that they don't pursue unless they see a reason to.

[Forza42]

There may be a bit of a miscommunication here. In the original post you say "we have a $100,000 HELOC with B of A. We owe $240,000 on the house, but it's only worth about $190,000. " This reads as mortgage #1 = $140k, mortgage #2 = $100k. Therefore the second isn't fully unsecured and can't be stripped.

THEN you say in a later post: "We are underwater on our first mortgage. We owe $240K, it is worth $190K." Here, it sounds as though you owe $240k on your first alone, which would indicate that you owe a total of $340k on this house including the 2nd. If this is the case, then the 2nd IS fully unsecured and CAN be stripped.

Please clarify.

Sorry! We owe a TOTAL of $340K. First mortgage is $240K, HELOC is $100K.
Thanks!