ARM Mortgage included in plan???

[erinb1975]

Hi all,

Quick question. We had our 341 meeting yesterday, and everything went well. Trustee is super nice, total debtor's friend, which was a nice surprise. We are doing a lien strip to get rid of our 2nd mort. Anyway, our lawyer told us that they now want our 1st mortgage included in the plan. That is no problem for us, but I am not sure how an ARM works within the plan?

Anyone out there have experience with this? I am not sure if the rate gets frozen, or if our payment will continually adjust per our original mortgage, or if our unsecureds adjust with the payment increases??

Any help would be appreciated!

[MOMof3]

Unfortunatley, it adjusts & your payment to your trustee increases. This has happened to us to the tune of $300 per month. You can try to adjust your plan to compensate for it, but there has to be wiggle room---we had none, so just have been forced into paying the extra.

[MajorMike]

That's why you should NEVER get an ARM. They are nothing but dangerous.....
They need to come up with something in the BK laws regarding that because it really hurts people.

[erinb1975]

Yeah, hindsight is always 20/20 right??? We were OK with the ARM at the time because we thought we'd be able to refi in a couple of years and go into a fixed rate. Didn't bank on the market crashing and the fact that our home was overappraised (Fraudulently)...leading to losing 40,000 in value in 2 years. That's what led us to file. Can't refi, can't continue the way we are now...

Mom, when you say you can try to adjust your plan do you mean decrease the percentage going to unsecureds? Right now we are paying back 29%. We would have some room to decrease that I would imagine. Scares me b/c our cap on our ARM is 11.5%....we are only at 8.75% now I think...paying $1650 at this time (13 payment will be approx. 3200)

The only good thing, if we can just roll with this for 5 years, is that our 2nd will be stripped and we'll be back to having equity in our house (as opposed to 40,000 in negative equity).

Hopefully we'll be able to refi at some point.

[MOMof3]

Yes, if you are paying 29% to unsecureds, your plan can be amended to include the extra interest and pay less to unsecured. You actually have to file an amended plan though. Our trustee would not allow it because we are less than 10% to unsecured.

[yak411]

What exactly do you mean when you say that your second mortgage was stripped. I am in the same situation. I had 2 mortgages, the first at 220,000, second at 55,000. I am also in an ARM but will not readjust until 2009. I bought the home 2 years ago, fraudulent appraisal. The home is now worth about 255,000. I owe more than it is worth. Would love to stay in the home but in a bind.

[erinb1975]

Some will allow you to "strip" off the negative equity in your house and make that amount unsecured debt. I have seen some who will only allow it if your second mortgage is wholly unsecured, however our plan allows for 2,000 to be considered secured and the other 40,000 to be unsecured. It wasn't a problem at our 341, so we'll have to see. If you do a search on lien stripping here you should get some good posts.

It's the only reason we chose to keep our house.

[yak411]

What state are you in? My attorney did not mention this to me at all.

[HHM]

Generally speaking, whether you can lien strip depends on 2 things.

If all the loans on the home are "purchase money" security interests, then there can be NO, non-exempt, equity securing the loan. For example, if the home is worth $200,000, and you have a first mortgage for $190K, and a 2nd Mort. for $30K, you could not strip out that second mortgage because it still has $10K in equity securing it, and because it is a purchase money security interest, you cannot divide the claim into its secured and unsecured portions.

If one (or more) of the loans is a non-purchase money security interest, you can divide the lenders claim into secured and unsecured, and strip out the unsecured portion.

There can be state law caveats to this, but generally speaking, purchase money liens are all or nothing with regard to striping.

[erinb1975]

Ohio