Chapter 13 and house

[mbmurray]

After posting in another thread, I was told that Chapter 13 is my most likely route based on my income.

Well the reason I am in this position is because I can't afford my mortgage any longer and pay my other bills. My unsecured debt at this point is manageable (~12K). I basically want to get a house I can afford and get rid of this one, but will have trouble selling it because it is 2 house property (primary and guest house) My questions are then:

Can I surrender the house in Chapter 13 and not be liable for the mortgage any longer, i.e. tax liabilities, defencies in amount house is sold for when foreclosed, etc. This is my main issue and seeing that filing for bankruptcy is the only way I can do it?

I would walk away or just do straight foreclosure but then I would be liable for any deficiencies or would have to pay taxes on the difference correct? Are there any options other than bankruptcy?

Any thoughts would be appreciated. Thanks.

[SinkingFast]

Some states have anti-deficiency laws which protect purchasers of residential real property used as his/her primary residence pursuant to a purchase money mortgage. In the event that the purchaser fails to make the mortgage payment and the property is foreclosed (title taken by the lender through a legal procedure) and sold to pay the mortgage, a deficiency between the sale price and the outstanding balance of the mortgage could occur. Under anti-deficiency laws, if the mortgage is a purchase money mortgage for the purchase of a dwelling occupied by the purchaser, the purchaser will not be held responsible for any deficiency - the lender can only recover the property and the proceeds of a subsequent sale - the purchaser does not pay any deficit between the sale proceeds and the outstanding loan balance.

Anti-deficiency laws typically provide no protection for non-purchase money mortgages (such as a second mortgage obtained after the original acquisition) and there is no protection when the property is not used as the primary residence of the purchaser.

http://real-estate-law.freeadvice.co...cy_balance.htm

If you only hold one mortgage on your property, your Lender may not be able to seek a deficiency balance from you. Depends on how the Real Estate Law is written in your State.

You need to schedule 3-4 Consult appts with attnys to learn where you stand.

[mbmurray]

Right now I have only one mortgage on the property and it is my primary place of residence.

I live in virginia, lets say they don't have anti-deficiency laws. I thought I read that filing bankruptcy will cover you in that sense, so that if there is a deficiency you are not liable for it, is that true?

[HHM]

Right now I have only one mortgage on the property and it is my primary place of residence.

I live in virginia, lets say they don't have anti-deficiency laws. I thought I read that filing bankruptcy will cover you in that sense, so that if there is a deficiency you are not liable for it, is that true?

Correct, if you file BK, the deficiency is discharged as an unsecured debt.

[mbmurray]

But in chapter 13 would that deficiency be considered debt and something that I would have to pay back using the payment plan or is it wiped clean like in chapter 7.

[HHM]

But in chapter 13 would that deficiency be considered debt and something that I would have to pay back using the payment plan or is it wiped clean like in chapter 7.

It is lumped together with the rest of your unsecured debt. So, if your chapter 13 pays 40% to your unsecured debt, then the deficiency will be paid 40%.

Keep in mind, a Chapter 13 is about paying "what you can afford to pay" to your creditors. So, if you only have enough disposable income to pay only 5% to your unsecured creditors, then that is all they will receive. When you chapter 13 is discharged, any remaining amount owed to your creditors is discharged.

[mbmurray]

So basically, using the means test, etc. Whatever they define my disposable income to be, is applied equally to all my creditors of unsecured debt, which would include any deficiency on my mortgage?

My mortgage is well under the appraised value of the property, meaning I have plenty of equity, does that factor into anything?

[HHM]

How much equity? And for that matter, what state are you in. On caveat of a chapter 13 is that your unsecured creditors must get at least as much as they would in a chapter 7, so if you have more equity in your property than your state's allowed home equity exemption, then you must pay at least that amount into the chapter 13 plan.

If you have equity, why not just sell. If you surrender the house in BK or not, you will lose that equity. At foreclosure auction (note, the mortgage holder still forecloses the property even if you surrender the house in BK), it is rare for a house to fetch more than the asking price (which is the amount needed to fully compensate the mortgage holders).

[mbmurray]

I live in VA. So if i have equity in the house which is more than the states homestead exemption, I must pay what amount into the chapter 13 plan, the exemption amount or the amount of equity in the property? Property is valued at 1.1M, mortgage is ~830K. Selling is the issue, the two houses are not subdivided, so it is a primary house and a "guest" house on the same piece of property (2 acres), much more difficult to sell then a normal house.

If it is the amount of equity, what if that is larger than my disposable income x 60, how can I be forced to pay that? Isn't my payment in chapter 13 what my disposable income is per month, not how much equity I have in my house, correct?

[HHM]

It is the amount of equity in "excess" of your state's exemption.

Based on your numbers, you have $270,000 in home equity.

Here is VA's Home Equity Exemption

$5000 plus $500 per dependent; may also claim rents & profits; sale proceeds exempt to $5000 (husband and wife may double), Cheeseman v. Nachman, 656 F. 2d 60 (4th Cir. 1981); unused portion of homestead may be applied to any personal property

May include mobile home

Must file homestead declaration before filing for bankruptcy

Property held as tenancy by the entirety may be exempt against debts owed by only one spouse

Honestly, BK may not be the best option for you. You have several posts floating around the forum...but do you have any unsecured debt or is your issue that you can no longer afford the mortgage and the property is going into foreclosure?
The rule on Chapter 13's that unsecured creditors must get as much as they would in a Chapter 7 is a condition placed on the chapter 13 repayment plan, most people satisfy this because most people can cover their assets with exemptions, or their unsecured debt is much larger than there non-exempt assets, so it is usually a non issue. Also, the limit, of course, is that the creditor can only get up to what they are owed, they don't get more than they are owed, so if you have $200,000 in non-exempt assets, but only $50,000 in unsecured debt, you only have to pay upto the $50,000. If you cannot afford this, than you are not eligible for a chapter 13 and your case would be dismissed.
For example, if you have combined $60,000 in unsecured debt, and you have $200,000 of non-exempt equity in your home, you MUST pay all $60,000 to your unsecured creditors regardless of your disposable income.

If the MAIN issue with your debt is your mortgage, you should probably pursue a foreclosure workout agreement instead of BK. On a side note, VA does allow deficiency balances.

[mbmurray]

I have some unsecured debt ~12K as of this point. You are correct, the MAIN issue I am having is not being able to make mortgage payments and pay other bills with money left over. So I want to get rid of the house, but because it will be hard to sell due to the 2 house thing and if it goes to foreclosure, I don't want to be responsible for any deficiency balances, which I wouldn't be if I filed bankruptcy, I would be covered. That is what I am trying to avoid, deficiency balance.

I can't file chapter 7 because my income is over the state median, so I would have to file chapter 13. In your example above: if you have combined $60,000 in unsecured debt, and you have $200,000 of non-exempt equity in your home, you MUST pay all $60,000 to your unsecured creditors regardless of your disposable income.

Would that 60K that I am repsonsible for be paid over the 60 months in a payment plan in chapter 13? In my case it would be 12K, plus would I have to include the deficiency in that amount to paid over that time period as well?

You mention that VA does allow deficiency balances, which means if they foreclose, I would be responsible for the difference in sales price vs mortgage. If I couldn't pay that, which is likely, what could I do, file bankruptcy (chapter 13 due to income) because that is a large chunk of unsecured debt?

[mbmurray]

So, basically I am trying to use bankruptcy to cover my ass in the case where they foreclose on my home and the amount sold is less than my loan, even though it is appraised and I have 270K in equity.

Reading more on foreclosures it seems that if you are 80% LTV (which I am) on your first mortgage that they can't go for a deficiency judgement, is this true?

Also, the foreclosure has to be a judical foreclosure rather a non-judical (more likely) for a deficiency judgement to take place, is this true as well?

I am just trying to get information, sorry if I am rambling or posting in the wrong places...

[HHM]

You will need to see a lawyer to answer those questions, the information I saw regarding VA foreclosure, didn't mention any types of restrictions regarding deficiency balances.

It may be a hassle to subdivide the property, but not impossible, but why throw away $200,000+ in equity. That just doesn't make sense. I appreciate you are probably in a tough bind here, but I still think that BK is probably not the route you need to go. You should probably simultaneously pursue subdividing the property and a foreclosure workout agreement (even if its temporary).

[JohnMichael]

If you let it go to foreclosure and have equity, you won't owe anything. You just won't get the equity money back.

[mbmurray]

Well using your scenario, I could let the house go to foreclosure, if it sells below my mortgage and I have a deficiency and they go after me, that would be considered unsecured debt.

I then could file bankruptcy at that point, because I would have no equity in my house any longer since I wouldn't have the house, and I would have a payment plan based on all my unsercured debt since I would not have any sercured debt at that point. Yes?

Subdivision is not an option where I live, the process takes way too long, at least a year most likely more.

My credit at this point is the least of my worries, I can get build that back up, use my wifes for car loans, future house loan, etc. I just want the least amount of debt out of this and trying to find the best way out.