Thoughts, questions & concerns?

[mathom1]

Ok, a couple of questions.

1st Question
We are ~1 year into in a Chap 13. We did a lien strip on the HELOC.
I'm considering taking a position for less pay, which would drop us into converting to a Chap 7. What happens to the lien strip? It can't be dismissed in Chap 7 so does it just pick up again and we start paying? If let the house go, does the lien strip go as well?


2nd Question
Regardless if we stay the course in Chap 13 or convert to Chap 7. Once we clear either one, our school loans kick back in and based on my current income or possibly lower with a job change....We can't afford to make the school loan payments. So I'm right back where I started...underwater
Any thoughts or suggestions?

[SMinGA]

If you convert to a ch. 7, the lien strip won't complete. So the 2nd/Heloc will retain its security interest in the house. If you let the house go, it won't matter if you're upside down because your financial obligation on the loans will be discharged.

For the student loans - look into Income Based Repayment. If your loans are eligible, it can reduce your monthly payment based on income/family size. The down side? Your payments may not cover interest and so your loan balance would not go down. On the other hand, after 24-25 years of being IBR your debt is forgiven. You would have to reapply each year, submitted tax returns as the IBR payment is based on your annual income.

[mathom1]

SMinGA,
So, let me wrap my brain around this...
If we file Chap 7 and let the house go....the HELOC gets discharged as well?
If we file Chap 7 and stay in the house....the HELOC is still our finacial responsibility?

Also, Thank you for the IBR information. I'll look into it to see if out private student loans qualify.

[SMinGA]

Yes.

I hear some have kept the house, stopped paying the HELOC and eventually offered a settlement to get them to relinquish the lien. There is always a gamble in that they could move to foreclose - but if you're upside down on the 1st its a bad move on their part. (They must pay off the 1st if they foreclose.)

SMinGA,
So, let me wrap my brain around this...
If we file Chap 7 and let the house go....the HELOC gets discharged as well?
If we file Chap 7 and stay in the house....the HELOC is still our finacial responsibility?

Also, Thank you for the IBR information. I'll look into it to see if out private student loans qualify.

[spidge]

Yes.

I hear some have kept the house, stopped paying the HELOC and eventually offered a settlement to get them to relinquish the lien. There is always a gamble in that they could move to foreclose - but if you're upside down on the 1st its a bad move on their part. (They must pay off the 1st if they foreclose.)

Wouldn't the 2nd lien holder only be able to come after the asset and not the borrower after a ch7? Thats is if they do not re-affirm any mortgages.

[SMinGA]

Yes - I did not say the 2nd could collect $ from a discharged loan. Was just saying some have tried to settle the 2nd. Its a gamble - they're expecting the 2nd won't foreclose. (Foreclosure is the legal process to acquire possession of the house - not a collection matter.)

Wouldn't the 2nd lien holder only be able to come after the asset and not the borrower after a ch7? Thats is if they do not re-affirm any mortgages.

[LadyInTheRed]

So, let me wrap my brain around this...
If we file Chap 7 and let the house go....the HELOC gets discharged as well?
If we file Chap 7 and stay in the house....the HELOC is still our finacial responsibility?

Yes.

Just wanted to clear up the confusion that caused spidge's question. The answers to the above questions are yes to the first question and no to the second.

The HELOC will be discharged in a Chap 7 whether the you stay or go. The lien will remain, but you will have no financial responsibility for the loan whether you stay or go. But, if you want to stay but don't make payments you risk foreclosure (which isn't likely until you pay down the first or the value of the home increases), which is why trying to settle with the second to get the lien removed is a good idea.