Chapter 13 Questions

[grndmom53]

Live in Arizona, family of 2. Have to do a 13 due to having a chapter 7 BK filing in Dec 2003 & discharghed in March 2004.

Now have 25k in unsecured debt & 2 autos with payments that are only a year old. My question is our house. Our payment on the first & 2nd is $2200 total. It is going up in Nov 2008 by $200 a month & then adjusts in 6 months after that an addtl $200.

We plan on keeping our house & cars, but what happens next year or so & we can't make the higher mortgage payments, can we surrender the house then & not get stuck for the difference between what is owed & wht the bank sells it for?

Our income is 70K, not late on anyhting right now. I know it will be difficult to refinance the house next year while in a chapter 13. Also, can't sell now due to high pre-payment penalty & poor market.

Thanks

[B12]

According to your salary, you should not be paying more than 1600.-1700. a month for a mortgage and that includes the total of principle, interest,taxes and insurance. Add to that is the very good chance that as your mortgage payment increases, the value of your house is decreasing.

Why do you want to keep the house? It is an albatross that is going to come back and bite you again.

Do you mind if I ask what the car payments total?

IMO, 25,000 is not that much debt to use your BK option.

[MajorMike]

My question is, why did you get back into the hole just 3 years after a BK? Was it health issues ? I know I'm done with credit cards after this. One for a $1,000 limit, paid off each month.
Why would you do this to yourself again?
25K isn't that much cc debt to do a BK on but the house is killing you IMO.

[grndmom53]

Chapter 13 ??

Poor choices is what got us back in trouble again. Working on issues now to avoid this in the future.

I just refigured debt & it is 34k unsecured, cars are 2002 truck & 2005 Toyota with payments of 600 total. I am afraid to just walk away from the house because I don't want the bank to come after us for the difference or issue us a 1099 for forgiven debt.

We owe $288,000 on home without 8k pre-payment penalty, probably worth 300k to 320K.

May be we should just wait a yesr to sell

[B12]

I would hate to see you make another poor choice and try to keep this house. You say it is "probably" worth such and such.
You might want to find out what the last house sold for in your neighborhood before you make a decision to keep the house.

As far as selling next year........... just my opinion, but I see the RE market declining for quite a few more years before it recovers.

With closing costs of selling, your pre-payment penalty, and the rapidly declining market, you are already upside down, even at 300,000.

BTW, for those of you who have a pre-payment penalty, peruse your docs carefully. Sometimes the pre-payment penalty only kicks in if you refi, not if you sell.

Lots of states prohibit the pre-payment clause on mortgages.
If you live in a state that allows it, you should be bombarding your representatives to act to get rid of this practice.

[lrprn]

I am afraid to just walk away from the house because I don't want the bank to come after us for the difference or issue us a 1099 for forgiven debt.

The house is killing you financially. If you surrender the house in bankruptcy and DO NOT reaffirm the mortgages, then you will owe the bank nothing. The bank also cannot send the IRS a 1099 either. You'll be free of what is dragging you under.

Waiting to sell in a declining market and not filing now means you're probably not going to be able to sell the house for enough to zero out both mortgages. This is what is going to get you a 1099 with the IRS.

If you haven't talked with a bankruptcy laywer yet, start setting up your free or low cost initial consultations with 3-4 in your area. You'll learn a great deal about what will work best in your situation. And keep asking questions here - we'll help you as much as we can.