Should I just quite and pay it all off?

[BKinMaine]

Hello,
I will be starting year 4 of my 5 year CH13 plan in August ( I am married but wife did not file with me). Things have changed quite a bit for us since.. Mainly the value of our home.

When I filed, we estimated the house was worth maybe 300,000. We are in a very desirable neighborhood and values have skyrocketed in the past couple years (more so since Covid hot). I estimate we could get as much as 600,000 for the house if we sold today and it would probably take a week to sell (seriously!) I currently owe 210,000 on the house and the mortgage is current and was never in default.

If I was to payoff the full amount of my debt it would be about 80,000 (this is questionable though.. I'll ask more about that later). SO obviously, I would still be doing well financially if I sell but.. We want to sell and BUY another home as soon as we can.

My biggest concern is what happens to the state of my credit if I was to voluntarily end it and payoff the debt. As I understand it, If I complete the plan after 5 years, I would be able to qualify for a new mortgage fairly quickly afterwards (albeit at a higher rate). My wifes credit score/report is perfect with a Fico close to 800 (she was not attached to any of the debt I defaulted on, mostly business related that was personally secured). If I end it early, would it be a voluntary discharge or would it be a dismissal? Does ending it early make it harder for me to qualify for another mortgage? I would hate to have to wait a couple or more years before I could even consider it. If that is the case, I might as well just continue on with the payments.

We are not having trouble financially and can easily continue the payment plan. Am I crazy to wait and not cash out of the house? I just do not want to rent for a couple or more years just to wait until my credit slowly recovers to the point that I can qualify for a mortgage.

Another side question related to my debt.. I said I owed about 80,000 total, which is what I listed on my docs when filing.. but about 30,000 of that was never claimed and is now not listed as a creditor on my payment plan. Will I still be liable for that or did that creditor give up their right to it by not staking their claim?

Thanks!

[justbroke]

My biggest concern is what happens to the state of my credit if I was to voluntarily end it and payoff the debt. As I understand it, If I complete the plan after 5 years, I would be able to qualify for a new mortgage fairly quickly afterwards (albeit at a higher rate).

You could qualify for an FHA loan while in a Chapter 13. However, FHA loans have limits which is $356,362 nationwide except higher areas. If you live in the more expensive areas of Maine and wanted to buy again in main, the limit would be $403,650 in those parts of Maine. For Conventional mortgages, you'll have to wait 2 years after the Chapter 13 discharge to qualify, but you'd be able to get unlimited financing with conforming and jumbo loans.

I end it early, would it be a voluntary discharge or would it be a dismissal? Does ending it early make it harder for me to qualify for another mortgage? I would hate to have to wait a couple or more years before I could even consider it. If that is the case, I might as well just continue on with the payments.

If you end it without paying, that would be a dismissal. A dismissal looks bad and will prevent you from getting most new mortgages for at least 4 years. (I purposefully say 4 years rather than 2 years since this would not be because of extenuating circumstances, so the 4 year rule would apply.)

If you payoff the Chapter 13, then it would be a normal discharge. You are eligible for FHA loans (technically) immediately (even during the Chapter 13). You would be eligible for FNMA (Fannie Mae) just 2 years after the Chapter 13 discharge.The same 2 years would be for FHLMC (Freddic Mac) loans.

Another side question related to my debt.. I said I owed about 80,000 total, which is what I listed on my docs when filing.. but about 30,000 of that was never claimed and is now not listed as a creditor on my payment plan. Will I still be liable for that or did that creditor give up their right to it by not staking their claim?

No. If they didn't file a claim then they are out of luck! You would only need to pay the total of the "allowed secured claims" at 100%. Since you would be paying 100% you would need to pay the Trustee's commission as well as any interest accrued.

But, and there's always a but, if you dismiss the Chapter 13, all those creditors are put right back into the position they were the day you filed. They get to add interest at the contract rate as well as any legal fees allowed by the contract. This means that dismissal is not a good thing and "could" cost you more than just paying off the Chapter 13.

Interesting thing on interest. The interest accrual rate for federal "judgments" is currently 0.07%. That would apply to the post-petition accrual of interest. Anything prior to filing would be at your contract rate. Example: you owed CitiBank $10,000 and they filed a claim, including interest, of $11,200 on January 1, 2018. You ask for a payoff and the Trustee says that you must pay CitiBank their entire claim plus interest. The interest from January 1, 2018 until now would be at the rate of 0.07% per year! Which is peanuts. This means that if the Trustee had paid CitiBank $0.00 from January 1, 2018 until now (assuming January 1, 2022), then the total interest would be about $32 over the 4 years (since it's 0.07%)... so peanuts!

(The Federal judgment interest rate has been less than 0.20% all year. The highest I've seen, in 2019, was about 2.59%.)

[BKinMaine]

Thank you for the detailed response, it definitely helps and gives me something to think about.

I would like to get advice from a local professional about this but honestly, I just don't know who to talk to. It seems I would need advice from a local mortgage professional and also a BK professional. Who would you recommend I contact first or would/should there be a single person that can give me good advice on my specific situation?

[justbroke]

I'm assuming that you filed Chapter 13 through an attorney. That attorney, or firm, should be your first resource to talk about a way out from a Chapter 13 early. Please know that some mortgage programs (including cash out refinances) may not allow payoffs of bankruptcies. This is usually an overlay on top of the normal loan rules. Since you have so much equity, though, you might be able to get a HELOC and use a portion of that to payoff the Chapter 13. So many things to think about and so many scenarios to consider.

A Chapter 13 bankruptcy attorney, and more specifically the one that filed your case, is the absolute best person to discuss this. I would not discuss this with an accountant, CPA, mortgage broker, bank, or friend. You need an experienced Chapter 13 bankruptcy attorney, and the attorney/firm that filed your case is the first place you need to go.

[BKinMaine]

I have not been very impressed with the information I have received from my attorney. It's hard to get any detailed, concise information from him. All I seem to get are short, lacking replies to my emails. I think it may be time to schedule an in person meeting. Maybe if I get him to sit down for a few minutes I can get more detailed information from him.

[justbroke]

I can only re-emphasize that your current attorney is the attorney-of-record and you need to reach out to them. Perhaps have a site down with them and explain what you need to do. Maybe it would be a Zoom or Teams meeting, but I think you need to have that conversation. For this type of change, paying off a Chapter 13, the conversation will not be concise. There are many factors at play and you'll need to think about how to get to your goal.

[Zombie13]

If your name is on the mortgage as a signer/co-signer, you may need to look into the homestead exemption; it may not matter if you default on the bankruptcy: if you sell your home while *in* the bankruptcy, you (since you are bankrupt, not your spouse) can keep up to a certain dollar amount of the home sale proceeds, say, $70K. I suppose I realized, as I typed this, if you default out of the BK, it may be irrelevant. If you default on the BK, and sell your home, my concern would be: how much do you have to pay the creditors, total; then, where will you live after you sell your home? Will you buy, or rent? In the same location? If you buy another house, well, those houses will be expensive too. I am not sure about cost of rentals in Maine. Basically, it sounds like you may be trading a BK payment for a higher mortgage payment; just be careful, run the numbers, think it through.

[flashoflight]

If you stayed on the plan with no changes, would unsecured creditors be paid at 100%? If you have a 0% plan and $100k+ in unsecured debt, I wouldn't be gifting this equity to Visa and Mastercard.

You could do a cash-out refinance FHA manual underwrite with the court/trustee's permission and stipulate that all of the net escrow proceeds go to the trustee to pay the unsecured at 100% plus interest and trustee fees. You get whatever is left over. After your 13 is discharged upon paying the cash-out refi, do whatever you want with the house without the CH13 in the way. Most lenders don't do FHA manual underwrite with CH13. You need to find a lender that does these all day every day and don't consider any lender that doesn't mention ch13 in their advertisements.

[Barbisi]

One thing that hasn't been mentioned by any one is whether your house will need any updates, upgrades or simple touch ups (e.g. paint,minor repairs, etc.) before you could put it on the market and sell it for it for the going rate. You did not mention how old your home is, but with your wife able to borrow from CC because the BK13 did not include her, you may have already planned that out.
Should your wife use her CCs ,that might attract the trustees' attention, which might not be a good thing.
I mention this because we also live in a highly desirable neighborhood where houses routinely sell for 30-40K over asking price and have ballooned in value since we filed in 2017 .
In our case, though we would dearly love to be out of here ,we can't sell this year, because we simply can't access the cash needed to fix up a few things and do the touch ups necessary to allow us to make the profit we need to leave all memories of Colorado behind forever and relocate to a high COL state where we will happily rent until we decide where we want to be long term - no repeat Colorado mortgages for us , thank you! LOL
Also ,our lawyer made a pointed comment last year that our trustee "would never allow you to sell this house", so for us ,that means staying put until our 60th payment and we receive our discharge -then we can sell and get out!