CH 7 first then 13?

[woeisme]

My Sister-in-Law is considering BK right now (after seeing how it really helped us out, in CH 13 have more $ than we did prior!) Anyhow, they qualify for a CH 7, and are current on the house, so that's the route they are taking. But because she has a second and third mortgage on her house, even with the CH 7 will still be unable to have a livable budget. (husband is disabled, and she's nearing retirement so can't see a lot of potential for them to increase their income.) Anyhow, I was thinking, should I suggest to her to think about a CH 13 once the CH 7 goes through to strip the 2nd and 3rd mortgages? Or do you file CH 13 first? Not really sure how this would work, if they filed CH 13 after 7, and all they had was the house notes at that point, what would they be paying on? Or if they filed CH 13 first, would they then have to wait 3 years (since under median income) before could discharge the rest? I don't have all the specifics, just wanted to know if anyone had done combos of the two chapters and how they planned them out to maximize their situation. Thanks!

[HHM]

For a lien strip, it is actually better to simply file the chapter 13; there is no need to do a 7.

To strip the lien, they need to have a discharge from a chapter 13. If you file chapter 7 first, they would have to wait 4 years before they could file chapter 13 to do a lien strip, so just on that basis alone, she wouldn't do it that way. Also, lets assume she filed chapter 7, then chapter 13, the striped lien becomes an unsecured debt which she would be making payments on during the chapter 13 plan, which sort of defeats the purpose to some degree.

If they are below median, and wanted to do a lien strip, they would simply file a 36 month chapter 13, their payment would be whatever it would be, the money would get divided between ALL unsecured creditors; at the end of the chapter 13, ALL remaining unsecured debt is discharged.

[woeisme]

Thanks HHM! I didn't know about the 4 year rule, that's really helpful. Her lawyer never suggested 13 for some reason, but looking at her budget, I just don't see how they can make it even after a 7 unless they dump the house, which they seem unwilling to do. I'll suggest to her that she talks to her lawyer about a CH 13 to both lien strip and get rid of unsecured debts. Since it'd only be a 36 month plan that way, she might be able to get herself in a much better position that way. Thanks again!

[HHM]

She doesn't need much of a payment in a chapter 13, in fact, you can actually file a chapter 13 with Zero per month. You would need to write in a clause in the plan that if the debtors have disposable income in future, it will be devoted to the chapter 13 plan. Chapter 13 trustees don't like it, but there is nothing in the code that actually requires a payment. It only says that the debtor is obligated to pay their DMI to the plan, but if there is no DMI, your payment would be zero per month

[woeisme]

One more question, my SIL is planning on filing by herself since the debt is all in her name, but the house is in both names. Would they need to file the CH 13 joint to get the lien strip, or could she do that solo? I'm guessing joint, which could be a sticking point since her husband doesn't want to file and has given her major grief over her plans to file the CH 7...

[HHM]

If your SIL is the "only" person on the LOAN, she can file by herself even though the DEED/TITLE is in both names. However, if the LOAN is in both names, the couple would need to file a joint BK.