Above median income, negative DMI w/IRS standards

[BnkrptcyLwyr]

I just got a client confirmed paying $45/week ... stripping a second mortgage ... three year plan ... they make good money. They're ecstatic.

It's all about PLANNING for bankruptcy sometimes.

Some attorneys want to make the quick buck and file ... I will wait six months to file my client if it means they pay $500 less per month. I have saved my clients THOUSANDS throughout the life of their plans just by waiting sometimes and planning the timing of the filing ... making adjustments to withholding and increasing 401k and charitable contributions.

There are legitimate things that can save you A LOT of money if done right.

[albacore44]

i keep seeing refrences to Unsecured 2nd Mortgages being lien stripped. If a 2nd mortgage is unsecured, then it would not have a lien attached to the property so their would be no need to strip something that wasen't there. Am I missing something Here ??

Unless it was a situation where the creditor received a judgement and put a lien on the property.

The reason I ask this is I have a HELOC. Have not looked at the papers in a while, but I assume it is secured by my property. For some reason in my thinking, I did not think it possible to get a mortgage that was not secured by the property.

[UpsideDown]

Justbroke...this may be district specific...but as to your "little correction", I really did mean to say a $0 monthly payment chapter 13. Some very enterprising lawyers have proposed these plans and they have been confirmed. Strictly speaking, nothing in the BK forbids it. Granted, the BK Trustees don't like it because they don't get anything. NOW, you do have to state within the chapter 13 plan that if there is DMI in the future, it will be devoted to the plan. But it is legally possible to file a chapter 13 and in your plan propose to make NO payments for the length of the plan.

THAT'S what I'm talkin' about! Where are those lawyers when you need them?

Can the trustee object to confirmation of a plan like this, and if so, on what grounds can he object if the code doesn't prohibit it....logic? Or, does he just have to accept it? I guess the judge has the final say, right? Also, does prior case law have any weight in the judge's decision on something like this?

[justbroke]

NOW, you do have to state within the chapter 13 plan that if there is DMI in the future, it will be devoted to the plan. But it is legally possible to file a chapter 13 and in your plan propose to make NO payments for the length of the plan.

We were saying the same thing.

The pre-amble to my plan reads...

The projected disposable income of the Debtor is submitted to the supervision and control of the Trustee, and the Debtor shall pay to the Trustee by money order or cashier check by the date set forth in the “Order Establishing Deadline for Making Payments” the sum of

I guess I technically may have been able to avoid something by using the word "projected". But, alas, my plan is based on the standard District template from the Trustee.

BTW, I've read some interesting cases with an above median income filer with a negative DMI, proposing less than 36 months! And they won on appeal. Has to do with the use of the word projected when Congress siad you had to commit that. The appellate court concluded that if there is no projected disposable income (negative DMI), then there is no applicable commitment period.

HHM... also, did you notice my payment went up? The Trustee messed with my payments. I did finally receive my actual signed order of confirmation though. It's about time. Only 38 days to get it.

[justbroke]

i keep seeing refrences to Unsecured 2nd Mortgages being lien stripped. If a 2nd mortgage is unsecured, then it would not have a lien attached to the property so their would be no need to strip something that wasen't there. Am I missing something Here ??

Technically, the mortgage and note is the lien and you can't just remove it... even if the home falls underwater. Otherwise, people would get out of liens on first mortgages by pure virtue that the property value shrunk.

What people really mean to write is that a wholly unsecured junior mortgage being stripped in their Chapter 13 bankruptcy. A lien stripping, in a Chapter 13 Bankruptcy, doesn't become permanent until the Chapter 13 case is discharged and closed. If it is dismissed, the lien sticks.

This is well settled caselaw.

[BnkrptcyLwyr]

i keep seeing refrences to Unsecured 2nd Mortgages being lien stripped. If a 2nd mortgage is unsecured, then it would not have a lien attached to the property so their would be no need to strip something that wasen't there. Am I missing something Here ??

Yes, there is "unsecured" in the bankruptcy sense, and "unsecured" in the property sense.

In bankruptcy, "unsecured" is used in an economic sense - if you owe 100k on the home, and the house is worth 80k, the house is secured up to the value of the collateral (80k) with the difference being "unsecured" (there is no value to "cover" the other 20k if the property were sold at its value.

In the property sense, a lien on property (such as a mortgage) is a "security interest" in property.

So, if you have two mortgages on a property, both are security interests, and thus from that aspect the claims are "secured." But in bankruptcy, the economic value of the collateral may "secure" all, part, or none of those claims.

Example 1:

Home value: 100k
First mortgage 90k
Second mortgage 20k

Both mortgages are security interests.
The first mortgage is "fully secured" in the bankruptcy sense since if the house were sold for 100k, you could pay the first mortgage in full.
The second mortgage is secured to 10k, and unsecured to 10k.

Example 2:


Home value: 100k
First mortgage 101k
Second mortgage 20k

Both mortgages are security interests.
The first mortgage is "secured" to the amount of 100k, with 1k unsecured.
The second mortgage is completely unsecured in the bankruptcy sense since you would have nothing to pay towards the second if the house was sold for its value of 100k.


Now, this is important, you can ONLY strip a second mortgage if it is FULLY unsecured (as in example 2).

In short, the value of the property must be less than the value of the first mortgage. If the value is $1.00 over what you owe on the first, you can't strip the second.

[albacore44]

Yes, there is "unsecured" in the bankruptcy sense, and "unsecured" in the property sense.

In bankruptcy, "unsecured" is used in an economic sense - if you owe 100k on the home, and the house is worth 80k, the house is secured up to the value of the collateral (80k) with the difference being "unsecured" (there is no value to "cover" the other 20k if the property were sold at its value.

In the property sense, a lien on property (such as a mortgage) is a "security interest" in property.

So, if you have two mortgages on a property, both are security interests, and thus from that aspect the claims are "secured." But in bankruptcy, the economic value of the collateral may "secure" all, part, or none of those claims.

Example 1:

Home value: 100k
First mortgage 90k
Second mortgage 20k

Both mortgages are security interests.
The first mortgage is "fully secured" in the bankruptcy sense since if the house were sold for 100k, you could pay the first mortgage in full.
The second mortgage is secured to 10k, and unsecured to 10k.

Example 2:


Home value: 100k
First mortgage 101k
Second mortgage 20k

Both mortgages are security interests.
The first mortgage is "secured" to the amount of 100k, with 1k unsecured.
The second mortgage is completely unsecured in the bankruptcy sense since you would have nothing to pay towards the second if the house was sold for its value of 100k.


Now, this is important, you can ONLY strip a second mortgage if it is FULLY unsecured (as in example 2).

In short, the value of the property must be less than the value of the first mortgage. If the value is $1.00 over what you owe on the first, you can't strip the second.

Thanks for clarifying that , I pretty much knew that. In my case my 2nd is BIG $240K and I won't be able to strip as only about $160K is unsecured (at least for now), and that's where I was hoping the new government stimulous legislation would help with the mortgage write downs.

Have you heard of any/many successful 2nd mortgage principal write downs through the BK/negotiation process ??

[justbroke]

Have you heard of any/many successful 2nd mortgage principal write downs through the BK/negotiation process ??

I haven't seen any Court directed writedowns at all, and here's why. This is because 11 USC 1325(b)(2) prevents one from modifying any allowed secured claim against a property which is the debtor's primary residence.

I have only read cases where there was a negotiation and the 1st and 2nd were re-written into a new 1st mortgage with part of the 2nd principal and a lower rate. Actually, I've read several recent cases like that. I don't know how the lawyers pulled them off. I think they were borderline lien strips that weren't working in anyone's favor and the lender and debtor settled on a new 1st mortgage adding some of the principal from the 2nd, and reducing the rate. That I have seen.

[BnkrptcyLwyr]

Thanks for clarifying that , I pretty much knew that. In my case my 2nd is BIG $240K and I won't be able to strip as only about $160K is unsecured (at least for now), and that's where I was hoping the new government stimulous legislation would help with the mortgage write downs.

Have you heard of any/many successful 2nd mortgage principal write downs through the BK/negotiation process ??

The more important question is ... if your SECOND mortgage is 240,000!!!! ... and you're underwater 160,000!!!!! ... why on earth keep the house?

[justbroke]

The more important question is ... if your SECOND mortgage is 240,000!!!! ... and you're underwater 160,000!!!!! ... why on earth keep the house?

I second that!

[albacore44]

yeah, i know, sounds stupid doesn't it ?? well I live in the IE so cal and bought a Mcmansion new in 2003. did lots of fancy landscaping, pool, small house in the back for M-in-Law. I was actually lucky. when the builder finished, he was selling these homes for $1M +. I bought early at less than 1/2 that. when I refied my HELOC in mid-2007, house appraised at $900K. Now it might be worth $500k due to all the people walking away. it's like a Plague here, but I truly believe These particular homes will come back in value givin some time. I do have a good job 30+ years, just need a bit more income, and to fix those mortgages. besides, m-in-law lives with me and some of her $$$ bought this place, but thats another story.

[justbroke]

... but I truly believe These particular homes will come back in value givin some time...

I know exactly what you mean. My area is similar, although there are not many McMansions. However, the average single-family home is about 3,600 squeets around here.

Had I not been able to strip my 2nd, I would have probably walked. However, my first mortgage is just a tad over market value and I too am hoping for a rebound.

[albacore44]

I know exactly what you mean. My area is similar, although there are not many McMansions. However, the average single-family home is about 3,600 squeets around here.

Had I not been able to strip my 2nd, I would have probably walked. However, my first mortgage is just a tad over market value and I too am hoping for a rebound.

yeah, i guess mine isn't really a Mcmansion, it's the smallest most popular model at only 3200 sq ft + 600 granny flat, but more acreage than a standard Ca home. but I consider myself lucky. The hugh price escallation in this area flat out started with this builder. people are walking away from homes here they paid $900K new for, like Lemmings into the sea. mabee I was fooled but I never believed I would see $500k in equity just evaporate like this .

[HHM]

yeah, i know, sounds stupid doesn't it ?? well I live in the IE so cal and bought a Mcmansion new in 2003. did lots of fancy landscaping, pool, small house in the back for M-in-Law. I was actually lucky. when the builder finished, he was selling these homes for $1M +. I bought early at less than 1/2 that. when I refied my HELOC in mid-2007, house appraised at $900K. Now it might be worth $500k due to all the people walking away. it's like a Plague here, but I truly believe These particular homes will come back in value givin some time. I do have a good job 30+ years, just need a bit more income, and to fix those mortgages. besides, m-in-law lives with me and some of her $$$ bought this place, but thats another story.

You will not dig out of that kind of negative equity. If you look at historical appreciation, you would probably need to be in that house for 15+ years to recover. You are MUCH better off dumping it and buying the house (maybe even the same house) in two years at these depressed prices than trying to salvage negative equity. Make decisions on information you know, not speculation.

[BnkrptcyLwyr]

You will not dig out of that kind of negative equity. If you look at historical appreciation, you would probably need to be in that house for 15+ years to recover. You ave MUCH better off dumping it an buying the house (maybe even the same house) in two years at these depressed prices than trying to salvage negative equity. Make decisions on information you know, not speculation.

Absolutely right ... I tell my clients that this is an OPPORTUNITY to get out of a bad deal and later step back in.

To say that "well I'm hoping that the market will pick back up" is daydreaming at this point.

I say dump now, pick up the same house across the street for half price.