BK13, pay 400/mo. for 4 yrs and balance at end?

[halelani]

I don't quite understand about this. I had a conference with a BK atty today. He said the trustee would request that my unsecured debt could be paid out at $400 a month for 4 yrs and at the end I would pay the balance of debt to my creditors...Has anyone heard of this before?

[lrprn]

I don't quite understand about this. I had a conference with a BK atty today. He said the trustee would request that my unsecured debt could be paid out at $400 a month for 4 yrs and at the end I would pay the balance of debt to my creditors...Has anyone heard of this before?

I'm guessing that the "balance of debt" that your lawyer was talking meant one of two things:

1 - Your secured debts for assets that you want to keep (like your home mortgage) that won't be paid off by the end of your 13. You will continue to pay on those secured loan balances after your 13 ends. However, anything left on your unsecured debts (credit cards, medical bills, etc) at the end of your 13 will be wiped out - you won't owe anything more on those debts.

2 - Your 13 will pay 100% back to all your secured and unsecured creditors so the "balance of debt" will be paid back completely when your 13 is done.

Does either one of these make sense?

[halelani]

I'm not sure

My attorney told me that after the 4 yr and 400 dollars were up that I was going to have to find around 50K, (difference of what I had paid in) so I'd better start finding places to refi, well heck, if I could do that now I would...but I've got a little bit of a financial problem. I'm not sure about these BK13's. I think they want me to pay off the whole 75K is my understanding and the 4 yrs, 400 dollars is just buying me time.

[StartingOver08]

Sounds like you need to interview other BK attorney's - they are not all alike. Their experience and motivations all differ.

[woeisme]

Are you trying to protect a lot of assets? if you have either a high income or a lot of assets, that is when you get forced into 100% repayment plans. Since he's only proposing $400/month, my first thought is that you are trying to save assets that have so much equity that you have to pay 100% to satisfy the rule that a CH 13 must pay the creditors back as much as what they would have received under CH 7 liquidation. (for example, if you have a house with 100K equity in it, but your state exemptions will only protect 20K of this equity, then your CH 13 plan must propose paying back the 80K your creditors would have received if you went CH 7 and sold the house.)

[halelani]

It is much clearer now. I understand why my attorney said this. So I see that because of the equity in the home. But as someone stated earlier, what is the value of your home in today's market? I'm guessing not much even though it has a tax assessors value of 611K down from assessor value of 666K. And obviously I can't base my equity on that, perhaps closer to 50% of the Tax value would be closer to the mark? And then it is better for me to let it roll into a BK7 and forget the repayment plan. It's just hard to believe all of this. Zillow should correct here pretty soon, they are showing the value of this house at 950K--hmmm, we can dream.

[woeisme]

You need a real assessment of the value. Your CH 13 or CH 7 judge will require it anyhow, so might as well bite the bullet and pay the $300 or whatever it will cost to have a real appraisal done now, since you'll have to anyway. Have the appraiser do a real market appraisal based on comparable properties that have sold in the past few months, otherwise it's going to come in really high and that is what is screwing up your CH 13 payment proposal.

[StartingOver08]

New appraisal requirements just went into effect today, May 1, 2009.

The requirments add a 3 yr absorption rate analysis to the appraisals called a market conditions addendum. This is for fannie mae - but freddie usually follows suit right away.

https://www.efanniemae.com/sf/formsdocs/forms/1004mc.jsp

Make sure the closed sales are no older than 90 days. Make sure they are true comps.

[HHM]

These ballon plans are usually used when there is a liquidation value issue.

I.e. you have non-exempt equity that must be reconciled in the chapter 13. In a chapter 13, your creditors must get at least as much as they would "if" you filed chapter 7 and non-exempt assets were liquidated. If you cannot afford to pay the liquidation value with only your disposible income, one option is to create a ballon payment (however, there was a recent decision that said you can no longer do this if the ballon payment is to be funded by refi of real estate).

It's not a great plan, these ballon chapter 13's almost always fail, but, you get the protection of the BK court, but come year 4 when you can't make the ballon payment, you are back to square one.

Basically, these are used when the debtors are unwilling to face the reality of their situation...which is, sell the house, use th equity to pay your creditors, and start over.

[StartingOver08]

OP, wouldn't you be better off selling the house? You have such a small loan (indicated in another thread) that you actually end up with $$$ in your pocket, creditors paid off and your retirement intact if you sell your home for the actual FMV.

[halelani]

Believe me I have tried to sell this house and I have had many people coming through it but I live in a little town on the outskirts of a larger town. I had enough. Too many people coming through like it was Disneyland, it's still on the market. But I've curbed the hours of viewing. In a dream, it would have been sold a year ago and I would have moved on. But the market out here hasn't bottom out yet...even at 50% of what they were worth a year ago. Even my insurance company wrote a letter saying they wouldnt insure it at replacement value and devalued it by 200K! I'm really going down for the count here....

[halelani]

I've already filed for bk 13...I was told I was no longer allowed to sell the house. If I know otherwise, I could try to auction it off I guess. I'm in a quandry and a nightmare as to wondering what will happen short of the cardboard box and boot out the door scenario. Someone said to try and save my car as I might need it to live in...

[justbroke]

I have not much else to add to what HHM wrote which is right on point. If I had kept my "investment" home, even with surrendering my homestead, the Trustee indicated that I would have to pay back 100%. In order to do that, pay back 100%, I would need a balloon payment of $135,000 in year five. The Trustee's office actually modified my plan to do this. I was shocked, but was in conference with the Trustee's office and a lender attorney to work out a deal.

That's when the Trustee realized I was surrendering the "investment" property and keeping the homestead (I had changed my mind and had informed them 2 months prior, but they never took note of it).

As HHM suggest and actually writes, this is nothing more than a disaster waiting to happen. My District allows these balloon payments on property where you have equity. However, it's no fun to get to the last year and ready for Discharge, only to have the whole thing come crashing down because you can't refinance or sell... or are short on the cash. I would only do this if you are real certain you can make a severe dent in the distribution to unsecured creditors and have another means to pay it.

Having a $100K balloon payment at the end is the death of many cases. Avoid it like the plague by getting rid of the asset(s) that is causing this problem! For all practical purposes, it's telling you that there is something in your asset portfolio that you want to keep, but can't really afford to keep it (in the long run).

[halelani]

So best I just file for BK 7 and walk it sounds like. Throwing good money after bad is not a good thing any way you look at it. Someone will benefit, just not me.

[Flamingo]

See this thread for a similar discussion:

http://www.bkforum.com/showthread.php?t=38048