The "Doing it Backwards" Option?

[hjk4300]

My thanks to justbroke for some clear answers, as we consider Chapter 13. These and other factors have me thinking in a new direction. Or perhaps sort of backwards. I'm just writing here to get general feedback, be told I'm an idiot, or whatever.

It starts here: if I could pay my bills, we wouldn't be having this dialogue.

Owing a total of $480k on a house valued at $350k, with the 1st mortgage at $348k, no strip of the 2nd is possible. According to professional appraiser, no way to appraise significantly lower. And, BAC, who holds both 1st and 2nd, have refused/denied all attempts we made at renegotiation. We can't pay our bills, and mortgages, due to wife's job loss. So here's what I think: we're going to lose the house, no matter what!

The only reason I see to go bk of any kind is to save the house. Since I think that is impossible, forget bk, in my case, because: if I quit paying on the 1st and 2nd, I can remove all unsecured debt within 8 months. I CAN PAY EVERYBODY ELSE. Debt free except for the mortgage. I have to sell vehicle assets to do it, but clearing all other debts, without bankruptcy, would be worth it. Or so I think.

I am making one big assumption: BAC will not boot me for at least 5-6 months. It's a risk we have to take. Who knows - maybe at that point, they would renegotiate, but it's obvious to us that they won't do anything before then.

So I should end up with no home, but no debt, and no bankruptcy on my record. There will only be a single debtor on my record that didn't get paid. Is this bad? Certainly. But is it worse than the other options? I'm not sure. Consider:

I wouldn't spend 5 years in trustee hell. I wouldn't short-pay 4 major lenders. I wouldn't have a bankruptcy on my record of any kind. By 2012 we'll be back to 2 incomes (well, I guess that's hard to know, but...should be...) and be cash-positive, significantly. We start rebuilding almost as fast as Chapter 7, but without the Chapter 7. We start rebuilding WAY sooner than with a Chapter 13, if we tried to do that, but who knows how long it would take to get that equity to break-even - much less to a positive? And finally, statistically, only 40% of Chapter 13's complete the plan.

I don't know. I'm frustrated, as most of us on this forum are. If you have any comments on this, please submit. There are some very experienced and knowledgeable people on this forum, and I'll take all the advice I can get. Thanks.

[justbroke]

FYI, the strip is based on the first mortgage "balance". So, if you're behind in payments, this could put you over the top. That's not to say that the 2nd lienholder won't fight since it will be very tight. Mine was about 5-8% under the first, and I didn't hear a peep from my 2nd lienholder.

Just how much unsecured debt do you have to be able to pay it all back (including interest, penalties, fees) in 8 months? Just wondering, because it must be a small amount or you're thinking negotiating settlements.

Of course, if you don't have to file Bankruptcy, you shouldn't. If your home is a Deed of Trust, and they elect to use the non-judicial foreclosure there in Cali, this can happen in about 120 days after the NOD is filed. Well, that's four (4) months right there.

[momofthree]

I was going to say the same thing as JustBroke. If you are attached to your home and would like to save it, then, if your mortgage balance is THAT close to the value, then if you stop paying your mortgage for a few months, then that should increase the balance (due to interest and fees) to more than what it's worth. All that matters is the value vs. balance on the day of filing, so getting an appraisal would also be important. You could then include the arrears into your filing in order to bring your 1st mortgage current (and pay less to unsecured creditors), and strip your second. By the time you exited your plan, you'd have equity in your home again!

However, if you really don't care about the house one way or another, then go the other route. Just wanted you to be aware of your options.

And, as a side note, a chapter 13 is not the "trustee hell" that many people make it out to be. Often the people who talk about how horrible ch.13 is, are the people who filed a 7, and don't actually have firsthand knowledge. Does it require learning to live within your means on a realistic budget? Absolutely! However, you are still able to live a very comfortable life and even save up a little money for a rainy day.

[hjk4300]

Thank you justbroke and momofthree. I appreciate the sentiment about living with the trustee, and especially did not know that arrears would be considered against the appraisal, as well as the principal.

I take this as "all is not lost", and also "keep your options open."

Since the house is 30% upside down, there is less motivation to save it, than there is to "start over" and make "cash" our new equity position in the future. The unsecured debt is $42k. The combined house payments are almost $4k. Sale of 2 assets would generate $18k - even hugely discounted. I can pay off the unsecured, if BAC drags their feet.

I won't burn any bridges though, and we'll see what happens with BAC when push comes to shove. Since I'm willing to walk away, it doesn't matter, unless it's as good for me, as it is for them. By then we could be in a better position, anyway.

[walkthaplank]

Are your mortgages for purchase money only? Have you refinanced your house at any point?

[jrippon]

I'm in a similar situation where I really don't care to keep my house, but an important consideration for me is the possibility of a deficiency judgment. If your loan is recourse (and seconds usually are unless they were strictly purchase money) there is a good chance walking away will cost you sometime in the future. If they sue, you could be on the hook for the entire amount the house is upside down plus attorney and late fees, and interest. Realtors trying to make commission doing short sales will tell you all day that it never happens but with the current market I bet banks are pooling deficiencies, cherry picking borrowers to sue (based on credit score, income) - then sitting on the rest until the economy improves or worse, selling them off to collection agencies. If I were a bank that is what I would do. Bankruptcy can protect you from that nightmare.

[lrprn]

hjk3400, I deleted your duplicate thread with the same title and posted content. You're a new member, so this is a gentle reminder that it's against our forum rules to post the same thread more than once in the same forum or different forums. Hope you are finding useful information here, and keep asking those good questions!