Ch. 13 or 7--Please advise!

[concerned]

Secured debt (home):

We owe $224,000 in secured debts (1st mortgage = $172,000, $52,00 is second mortgage)--home is not selling, but appraised value is $223,000

Unsecured debt (credit cards & line of credit):

Total = $20,500

Details:

*We want out of our home and we don't have a problem repaying all unsecured debt.

Budget will be as follows after forfeiting home & renting:

*Gross income is $87,000

*Our discretionary income (after all debts paid except what we might owe due to ch. 7 or 13) will be around $500 - $800 per month (totallly a guess) with renting in a new apartment.

Questions:

1. Will we be forced to do a ch. 13, or can we simply do a ch. 7?
2. With forfeiting our home, will we have to repay this secured debt as well, or do we simply repay the $20,500 in unsecured debt?
3. If they liquidate our house and get say-$172,000, do we still have to repay the $52,000 second mortgage?
4. How long are we looking at repaying? We are hoping to file prior to 10/17 deadline.
5. Can we pay some credit cards now, since it was our intention to pay all credit cards anyway? Someone told us this was a no-no. Again, we really just want out of the secured debt.
6. Is our spending restricted during repayment if forced into a ch. 13? (Are you allowed any money for entertainment, or is all available funds to go to repayment?) I'm not talking about anything extravagant

Thanks so much for any feedback!

[fiats3]

Wos, you guys would cave for 20 grand?

I mean is the mortage really killing you? Couldn't be more than $1,200/mo. right? Any the rent on the new place would be about the same...so, is it the unsecured you are worried about? Most people are worse off before they consider bankruptcy. You can't cut a deal on the unsecured debt? It's so small. If it's credit cards and revolving I bet you could. My advice is to tough it out and get some debt consolidation action going. I have about $500K in debt and sweating it with the Dept of Justice (IRS)...I'd be laughing and watching football and having a good old time if I were in your boots....I'm curious too where in the U.S. is a home market as lousy as yours...must be Montana or something...they are selling like hotcakes in D.C. area...you'd get your appraised price for sure out here. Most homes go for $100K higher than appraised...hope this helps. Not trying to sound harsh on you, just been down this road a few times and know the ropes...

[concerned]

Our mortgage payment is currently $2100 per month. Plus, we have a land payment (unsecured) for another $326 per month. For a grand total of $2426/month. Our past heat bills last winter were $400 plus per month. Our day care is $600/month. We don't want to give up our home, we have to give up our home! We live in rural America, which can be very different from the markets you would find in a city. Yes, we could refinance at some point AGAIN and pay off the small unsecured debt, but this will only solve our problems in the short term; long-term we will be in trouble!

[Lightning]

There's no way you'll qualify for a Chapter 7 with $500-$800 left over every month. You only owe $20,500 in unsecured debt. If you only paid $500 into the plan, the debt would be paid off in 41 months. If you paid $800 into it, you'd be paid off in a little over 2 years.

Why do you want to file bankruptcy over a relatively small amount of debt (given your income)?

[concerned]

Lightning

We just got paperwork back from our attorney. It said we have to file a Ch. 13. We just want out of our home. We keep refinancing and we have been trying to sell it but we can't. Owning a home is not what we thought it would be. We were not ready for the financial burden it was cause. That's why we went to an attorney. We originally wanted a deed in leiu.

How does a Ch. 13 work? Our budget shows a little over $500 per month. Is this the amount we will be required to pay in each month? I am totally clueless right now.

[HHM]

Have you used a realtor or are you trying to sell it yourself?

[concerned]

Attention: HHM

We listed with a realtor for 6 months, but they basically told us it was never going to sell. Homes in our area for over $100K are not selling (that's what the realtor told us).

We got paperwork back from our attorney today. He is doing a crossroads file???? He will try for deed in leiu first, but will basically tell the banks that we plan to do a Ch. 7 if they don't agree to deed in leiu. Our budget shows that our expenses exceed our income by about $300, which is why we keep getting into more credit card debt, refinancing, etc. We could continue on this way, but realize this is futile. We are concerned about trying all of this with Oct. 17 rapidly approaching.

My concern is they don't know if we will end up with ch. 7 or 13, and we are concerned about how much we will have to repay if it ends up going 13. What determines if it's Ch. 7 or 13? The majority of our debt is secured debt (home). If we give up the home to auction and they get $50,000 less than what we owe, then how much of the $50,000 will we be responsible to repay?

[edwards2]

Basically your disposable income determines which chapter you should file. High income does not necessarily mean a Chapter 13 if you have a lot of justifiable outgoing expenses every month. As for the house situation I am clueless on that; hopefully someone on the forum can help you there.

[HHM]

Generally, mortgage companies are not entitled to a deficiency balance upon foreclosure, but even if they are, its considered a general unsecured debt at that time.

However, it seems like a bankruptcy is an extreme option in you situation.

There are 2 factors that go in to determining how much you pay back in a chapter 13 plan.

1. Your disposible income, if all you have is $200 left over at the end of the month after paying all necessary living expenses, then that is all you can afford and therefore you pay back $200 per month for at least 36 months but no more than 60 months.

2. Liquidation Value of your estate: This factor determines the minimum amount you have to pay to have your plan approved. Basically, your unsecured creditors must get paid what they would if you filed a chatper 7 and had your non-exempt assets liquidated.

If the liquidation value is more than what you can pay from your disposable income, your chapter 13 will be dismissed.

Liquidation value is rarely an issue because most people who file chapter 13 have zero or very little liquidation value. Its usually an issue for higher net worth individuals who need to file a chapter 13 for whatever reason.

[concerned]

-hhm

Thanks so much for the information. We really don't want to file Ch. 7, but we also really want out of this nightmare. We are hoping the lenders will accept a short sale or deed in leiu. I'm worried they won't since we have two mortgages. I had some questions on your answers:

1. Your disposible income, if all you have is $200 left over at the end of the month after paying all necessary living expenses, then that is all you can afford and therefore you pay back $200 per month for at least 36 months but no more than 60 months.

Is this determined with a NEW budget after you file, or does it use your budget at the time of filing? If we move out to an apartment prior to filing and are no longer paying our mortgage, will they still factor in the mortgage payment with this calculation?

2. Liquidation Value of your estate: This factor determines the minimum amount you have to pay to have your plan approved. Basically, your unsecured creditors must get paid what they would if you filed a chatper 7 and had your non-exempt assets liquidated.

What do creditors get paid when you file Ch. 7? Are they paid the loss amount on your home plus unsecured, non-dischargeable debt?

If the liquidation value is more than what you can pay from your disposable income, your chapter 13 will be dismissed.

Will it be changed into a ch. 7?

[HHM]

Your first question is a tricky one...technically, the expenses you list are the ones at the time you file, but if you are surrendering your home, then obviously, your housing expense will go down. I honestly don't know how it will play out, but generally, since income earned after you file BK is not part of the estate, I think you will be ok.

Unsecured creditors would get paid if your's was an Chapter 7 Asset case, meaning there is some asset(s) the trustee can sell to get cash and pay to unsecured creditors. This relates to your states exemption law, each state provides exemptions to help you protect your real and personal property from being taken by creditors. If you have propert whose value falls outside of your state's exemptions, then that that amount is what creditors get paid. It doesn't sound like you have much to worry about on this issue though.

Yes, the chapter 13 will be dismissed, but generally no, you cannot convert to a chapter 7 because you have disposible income, but its not automatically ruled out either.