Questions from a newbie - Please help!

[IcedLatte]

I have a 1st mortgage and a 2nd when I bought my house. A year later, I took out a home equity loan to payoff the 2nd and use the extra left over to make the mortgage payments. I was hoping to flip the house and get out quickly. This was back in 2007 and we all knew how bad the market has gone down since then.

I stopped making payments (both 1st mortgage and home eq) about a year ago, because I drained out my savings and my monthly income wouldn't cover the mortgages. The 1st mortgage is filing for foreclosure as we speak, and the home eq lender is having a hearing for summary judgment in 2 weeks. I don't own any unsecured debts (no cc's - payoff each month). Just ran out of savings to pay mortgages.

I think I won't qualify for Ch.7 because of my income. Should I go for Ch.8 to strip the home eq loan?

Forgot to mention that my house is under short-sale negotiations with the 1st mortgage lender, but the home eq lender is going after my income and bank accounts (it seems like it since they're filing for summary judgment).

I'm going to consult a couple of BK attorneys in my area to see what advice they can give me, but I would like to hear your opinions. Thank you very much if you can share your thoughts and advice.

[momofthree]

#1. I've never heard of a chapter 8, do you mean chapter 13?

#2. How much of a deficiency are you going to be responsible for if they foreclose?

#3. Have you taken the means test? How much does it say your disposable income is (DMI)?

[IcedLatte]

#1. I've never heard of a chapter 8, do you mean chapter 13?

#2. How much of a deficiency are you going to be responsible for if they foreclose?

#3. Have you taken the means test? How much does it say your disposable income is (DMI)?

I am sorry, yes, I meant Chapter 13.

I own about $716K on both 1st and heloc. House is probably worth $450K to $500K on market right now. I don't know really know how much of deficiency I am going to be held responsible for if the house is foreclosed.

I have not take the means test, but I will soon. Thanks.

[SMinGA]

What is the balance on the 1st? The HELOC?

If the home is worth less than the balance on the 1st then a ch. 13 & lien strip could benefit you. The HELOC would be treated as unsecured debt. But from your first post, I don't think you live in the house since it was intended as a flip? Not sure if the lien strip applies unless its your primary residence. May be different for investment properties but I'm not sure.

I am sorry, yes, I meant Chapter 13.

I own about $716K on both 1st and heloc. House is probably worth $450K to $500K on market right now. I don't know really know how much of deficiency I am going to be held responsible for if the house is foreclosed.

I have not take the means test, but I will soon. Thanks.

[IcedLatte]

What is the balance on the 1st? The HELOC?

If the home is worth less than the balance on the 1st then a ch. 13 & lien strip could benefit you. The HELOC would be treated as unsecured debt. But from your first post, I don't think you live in the house. Not sure if the lien strip applies unless you live there.

1st originally was $417K but now is $453K because of accrued interests + late fees. HELOC is $263K.

It is my primary residence and I am still living in the house, but just not making payments (on both 1st and HELOC) for a year now.

[SMinGA]

Whether or not you can 'strip' the 2nd in a ch. 13 will depend on exactly what it can be valued at. Sounds like it could go either way for you - owing $453k and value you say is $450-500k.

If it is worth even $1 more than you owe on the 1st, you cannot get rid of the 2nd in a ch. 13.

[forgotten]

I would say you need to surrender the home when you file.

It looks like you may not even be able to strip the second, as the value of your home may be higher than the balance on your first mortgage. Even if you could strip it you need to pay the last years worth of mortgage payments + your current payments durring your plan. If you haven't been paying either in the last year I assume you aren't going to be able to afford that.

[forgotten]

Another question... How much credit card and other unsecured debt do you have? If it is over $100k then you may be over the chapter 13 debt limit.

[momofthree]

Another question... How much credit card and other unsecured debt do you have? If it is over $100k then you may be over the chapter 13 debt limit.

Her original post states zero unsecured debts.

[forgotten]

Her original post states zero unsecured debts.

You are correct. I even reread the first before I posted that and still missed it!

No worries on the debt limit then.

[IcedLatte]

I went and met with my attorney today. He looked up the market value of my property and said it is $449K. I own about $457K on the 1st mortgage. The $457K includes $417K original note, plus accrued interests, property tax, insurance, and other fees.

When determine whether I can strip the 2nd heloc, do they use the original note amount of $417K on the 1st, or the current amount of $457K (including all interests, etc.)?? I forgot to ask him this question. From what I've read on this forum, I think it is the current amount right, not the original $417K. I am correct?

If they use the current amt of $457K, then my home is below the 1st. Then does it mean they can strip the 2nd?

Thank you all for your answers. Really helps.

[IcedLatte]

I would say you need to surrender the home when you file.

It looks like you may not even be able to strip the second, as the value of your home may be higher than the balance on your first mortgage. Even if you could strip it you need to pay the last years worth of mortgage payments + your current payments durring your plan. If you haven't been paying either in the last year I assume you aren't going to be able to afford that.

My atty said if I file Ch. 13, and if I want to keep the house, he would have me make 60 payments to bring the mortgage current, then after I am discharged, I can make the regular monthly payment on the 1st if I still want to keep the house. The 2nd heloc will be stripped and I might pay a little on it since it is unsecured debt. He didn't say that I have to pay last years worth of mortgage payments PLUS current payments during the 60 months.

Is he wrong?

[debtinohio]

You would have to cure any mortgage arrearage during the plan.

[IcedLatte]

You would have to cure any mortgage arrearage during the plan.

I am sorry I don't quite understand. Does it mean I only have to pay to bring the account current during the plan, but not in addition to monthly payment? For example, let's say I am $60,000 behind for not paying for the whole year, and my regular monthly payment is $4,000. Is it correct to say that I only need to pay $1,000 a month for 60 months to bring current the $60,000 and I don't have to pay the other $4,000 in addition to $1,000 each month?

[momofthree]

I am sorry I don't quite understand. Does it mean I only have to pay to bring the account current during the plan, but not in addition to monthly payment? For example, let's say I am $60,000 behind for not paying for the whole year, and my regular monthly payment is $4,000. Is it correct to say that I only need to pay $1,000 a month for 60 months to bring current the $60,000 and I don't have to pay the other $4,000 in addition to $1,000 each month?

No, you have to pay the $1000 in ADDITION to your regular payment. Otherwise, you wouldn't be curing the arrears, you'd be getting further and further behind each month.