Does Chapter 13 make sense for me?

[CaliforniaPl]

I've done lots of searching this forum and others and Chapter 13 is sounding more and more like it makes sense for me, but I guess I'm more nervous than anything about it. Never needed a lawyer or been to court or anything like that.

Bought my condo in California at the end of '04 for $406k with 0% down. 1st mortgage was $325k and 2nd was $81k. The balances are currently $325k and $75k. A condo with the same floor plan just sold in my complex for $270k and tax assessor says mine is worth $267k so I'm figuring comps are in the $260k-270k range. I'm single and when I bought, I was was making a bit over $100k annually. Last year the company I worked for shut down and I got laid off. I had eight months notice, so that gave me time to get a modification on my 1st, cut my expenses drastically, and save a bit of $$$. I have since been trying to get a modification on my 2nd with BofA and they just will not budge. They come up with every reason they can to deny me. The interest rate on that 2nd is 9%, I'd settle for just a reduced interest rate a few years, but they're not going for it.

When I got laid off, I was offered an opportunity to go back to school and have the government pay for it and unemployment is extended for the duration that I'm in school. Only problem is unemployment is $1,900/mo and my expenses are about $2,700/mo. And thats nothing fancy, 1st and 2nd mortgage, HOA dues and bills around the house are about $2,200, the rest is just basically gas, food, car insurance and an occasional haircut or something.

The plan is to be in school through May '12. I can't just go and get a part time job or something because anything I make would be deducted dollar for dollar from unemployment, so I wouldn't get ahead that way. But by that time, my savings will be all eaten up at this rate. I have no unsecured debt, I do have credit cards with limits of about $50k total, but I just use those for grocery shopping - mainly for the rewards - and pay them off monthly.

I talked to a lawyer today and he said it most likely can be done to strip the 2nd and pay 3% for 60 months, but its a bit unusual since I have no other debt. If I cut back a little more and get rid of 'luxuries' like DirecTV, I can get my finances down to the point that I can pay that 3% and just about break even monthly

I don't have anything fancy, a house of furniture, basic clothes, some tools to work on the home and cars with, couple of older computers, but nothing thats worth a whole lot. I like to tinker with cars and I have 3, but they're all paid off, older and high mileage over 150k miles and combined they're worth about $16k. I have credit scores of 804, 811, and 832. If I do BK, it will obviously kill my credit and I'll have to rebuild AGAIN, but I'll most likely be able to keep my home. And I should be all set so I won't be buying another home or car for a while, so it really won't matter.

Does it sound like Chapter 13 may make sense for me? And if I do so, as long as my 3 cars are under the protected amount, will that be a concern at all? I realize 3 sounds like a lot for a single guy, but they're all kind of beaters/project cars. Also, if I do so, when I go back to work next year, am I thinking right that during the 60 months that I am paying the trustee, I would want to limit my take home pay to about what it is now $1,900/mo because anything above that would go to the trustee? Anything else I should consider as I contemplate this process?

Thanks!!!

[chicagoed195]

Is your 1st trust with BOA as well?

If not, you might just force the issue with BOA and stop paying on the second. BOA isn't likely to buy out the 1st trust holder to enable them to foreclose on the condo. Then try to work out a cents on the dollar settlement. That might, and I emphasize might, be a better route than exposing yourself to a plan that could likely change if your annual gross income goes from $22,800 to perhaps $100,000 within a year of filing. Th trustee probably won't notice a 10% increase, but will most certainly see a 300, 400, 500% increase.

[CaliforniaPl]

Is your 1st trust with BOA as well?

If not, you might just force the issue with BOA and stop paying on the second. BOA isn't likely to buy out the 1st trust holder to enable them to foreclose on the condo. Then try to work out a cents on the dollar settlement. That might, and I emphasize might, be a better route than exposing yourself to a plan that could likely change if your annual gross income goes from $22,800 to perhaps $100,000 within a year of filing. Th trustee probably won't notice a 10% increase, but will most certainly see a 300, 400, 500% increase.

1st is with GMAC. I don't know if I want to run the risk and mess with BofA like that. Knowing them, they'll foreclose just to prove a point, even if they know they're not getting anything out of it - or even taking a loss. And from what I've seen with others' experience, BofA rarely settles, and if they do, they'll offer 85% or 90%. Either way, my credit is screwed.

I don't expect my income to be that high again. A lot of it was from over time, which was almost unlimited. Besides, if I were to do a 13, I wouldn't be required to make anywhere near that amount. I could survive on a lot less than that. I see both advantages and disadvantages to it - just trying to figure whats best for me.

[catleg]

You are in a very interesting situation.
Credit is still good but desire to "strategic default" on the 2nd.
Personally I think I'd stop paying the 2nd and see what happens.
But that will adversely affect your other credit cards, which you may need to survive at some point when the UC runs out.
How much does your payments breakdown between 1st, 2nd and HOA dues?
Can you live on the 1900/month UC and cover the 1st and HOA dues?

[CaliforniaPl]

You are in a very interesting situation.
Credit is still good but desire to "strategic default" on the 2nd.
Personally I think I'd stop paying the 2nd and see what happens.
But that will adversely affect your other credit cards, which you may need to survive at some point when the UC runs out.
How much does your payments breakdown between 1st, 2nd and HOA dues?
Can you live on the 1900/month UC and cover the 1st and HOA dues?

Yep. Whatever situation I'm in seems to be 'unique.
I don't desire to "strategic default" on the 2nd, but don't see many other options except just stop paying and see what happens. That will kill my credit and run the risk of foreclosing - maybe they will, maybe they won't. Not sure thats a risk I want to take.
1st and HOA are about $1300. Bills around the house are about $200. Another $400/mo for gas, food, insurance. I could just about break even if I were to be very careful. Even if I need to tap into savings $200/mo thats fine, but I've been pulling $1k or more out of savings since I got laid off. At that rate, I won't have savings by the time I go back to work.

[woeisme]

by "tapping into savings" do you mean that you have a sizeable amount of traceable $ in the bank? Or are you talking about $ in the mattress that you don't plan to disclose to the trustee? Because if you don't have enough exemptions for it, that amount is going to be gone to the unsecureds, which will be BofA once the lein strip goes through. So no, don't count on being able to tap into $200/month of savings for the next 60 months, because I don't think you are going to be able to protect that 12K from BofA when you go into CH 13 (unless it is secret hidden money you have in cash that you plan on fraudulently hiding). I don't know California's exemptions/wildcards, etc, but you can't use BK to strip a lien if you actually have the $ in the bank to pay it, sorry, BK doesn't work that way, where you get to keep a whole bunch of savings while not paying off creditors. It sucks, but I really don't think you can't have your cake (savings) and get to eat it too (get 2nd stripped).

[woeisme]

also you can't just break even on a CH 13, you need enough $ to fund the plan, you have to pay some amount every month to the trustee.

[CaliforniaPl]

by "tapping into savings" do you mean that you have a sizeable amount of traceable $ in the bank? Or are you talking about $ in the mattress that you don't plan to disclose to the trustee? Because if you don't have enough exemptions for it, that amount is going to be gone to the unsecureds, which will be BofA once the lein strip goes through. So no, don't count on being able to tap into $200/month of savings for the next 60 months, because I don't think you are going to be able to protect that 12K from BofA when you go into CH 13 (unless it is secret hidden money you have in cash that you plan on fraudulently hiding). I don't know California's exemptions/wildcards, etc, but you can't use BK to strip a lien if you actually have the $ in the bank to pay it, sorry, BK doesn't work that way, where you get to keep a whole bunch of savings while not paying off creditors. It sucks, but I really don't think you can't have your cake (savings) and get to eat it too (get 2nd stripped).

WOW. You sound like you work BofA or one of the many other banks that want to gouge consumers of every penny they can. Yes, I do keep my money in the bank, not in a mattress or any other piece of furniture. I couldn't very well pay my bills electronically that way. And I don't plan on doing anything fraudulently, so don't even go insinuating that.
I don't plan on pulling out of savings for 60 months, just until I go back to work next year. But lets use your formula, I've got a $76k 2nd mortgage that I'm trying to get assistance with. Just because I'm feeling so generous and sorry for the bank, I say here Bank of America, take the $10k that I have in savings. Now I'm completely broke and BofA is going to say ok, your next payment of $653 on your $66k 2nd mortgage is due August 1. And I'm going to say I can't pay it, and I can't feed myself, and I can't afford gas to get to school or anything else because you just wiped out my savings, and they're going to laugh and possibly go through with their foreclosure. So no, I'm not wiping out my savings and everything else that I worked hard for the last several years and screwing myself just to apease BofA or any other bank.

also you can't just break even on a CH 13, you need enough $ to fund the plan, you have to pay some amount every month to the trustee.

I know this. If you take a look at the question that I was answering:Can you live on the 1900/month UC and cover the 1st and HOA dues?. That was the question to breaking even. I am including money in that for the trustee.

[catleg]

I don't think he's trying to be cruel, just asking the questions that need to be answered.
For example, to do a lien strip as a below median individual, your ideal plan is 36 months x $100/month, just enough to pay the lawyer his fee.
So the question then becomes, do you expect to be able to complete such a plan? Is it possible you'll complete school and continue to be unemployed?
If you step up in income dramatically by working, you might expose some of that income to the trustee, it depends on local customs and practice.
Have you asked the lawyer what happens if you move out/short sale the property, is the 2nd loan a recourse loan? How badly do you want to stay there, what is the long term plan if still unemployed when the UC runs out?
If you do happen to have savings to protect, supposedly a roth IRA is the place to put them.
If you file any kind of BK all the credit cards probably get closed can you deal with that? (But if you file "out of the blue" without any lates or chargeoffs or judgments then the damage to your credit will be minimal.)

[CaliforniaPl]

I don't think he's trying to be cruel, just asking the questions that need to be answered.
For example, to do a lien strip as a below median individual, your ideal plan is 36 months x $100/month, just enough to pay the lawyer his fee.
So the question then becomes, do you expect to be able to complete such a plan? Is it possible you'll complete school and continue to be unemployed?
If you step up in income dramatically by working, you might expose some of that income to the trustee, it depends on local customs and practice.
Have you asked the lawyer what happens if you move out/short sale the property, is the 2nd loan a recourse loan? How badly do you want to stay there, what is the long term plan if still unemployed when the UC runs out?
If you do happen to have savings to protect, supposedly a roth IRA is the place to put them.
If you file any kind of BK all the credit cards probably get closed can you deal with that? (But if you file "out of the blue" without any lates or chargeoffs or judgments then the damage to your credit will be minimal.)

When this one lawyer and I talked, the numbers were approximately $150/mo for 60 and he was thinking paying 3%. Apparently he works with these trustees a lot and said they usually go for between 2% and 3%. And yes I do plan to complete it - thats $500 less than I'm paying now. Of course its possible that once I complete school, I will remain unemployed for a while - anything is possible. I'm not planning for that to happen, but I want to be prepared and have some $$$ on hand just in case. I'm already looking at different companies and considering starting my own business. If I find myself in that situation, I'll just take whatever job I can get, take a couple if I have to to make things work financially, but thats worse case scenario.
When I go back to work, I don't expect to step up in income a whole lot and doing this would ensure that I don't need to. I could do this with an 'average' income job as opposed to needing a high income as I did when I purchased (total mortgage and HOA was $3k/mo.).

The 2nd is a non-recourse. I haven't asked what happens if I short-sell, move out, walk away, or anything else. I will, but thats not part of what I have 'planned'. I do want to stay here for a while. Its not the greatest, but its home, and I have to live somewhere. I figure I'm a homeowner now, so I might as well stay that way as long as I can. I get the tax benefits, the permanence of owning vs. renting or leasing and not knowing if rent goes up, or get evicted, or get crappy neighbors or whatever else goes along with renting an apartment in the Bay Area. If I were to give this up, with crappy credit and a greatly reduced income, there is no way I'd be able to buy again for a long time. So I might as well fight for what I've got. Besides, rent in this area is high. For something small, but decent, I'd be paying a very minimum of $800-900/mo and more realistic is over $1,000. So even if I were to rent, I'd be getting less home, losing tax benefits, and not 'saving' a whole lot. I'd be better off getting myself another paying roommate if things get that tough.

I do realize if I file, that all my credit scores - which are all now over 800 - will be crap and I lose all the credit cards. Thats fine, I can deal with that. Its not what I want, but I can build it back up again as I've done in the past. I don't rely on credit cards, I learned that lesson a long time ago when I was young and dumb. I do have 3 with a total limit of about $50k, but I don't run them up. I use them just for what I need to take advantage of rewards, and pay them off every month. That was the one thing that the lawyer was kind of questioning, that we'd be doing this just to strip a 2nd and I don't have any unsecured debt. Sure, it would be nice to have them 'just in case' if things go pear-shaped after school or whatever. But I'm sure I'll make it just fine without them, just have to get used to it.

[Pandora]

When I got laid off, I was offered an opportunity to go back to school and have the government pay for it and unemployment is extended for the duration that I'm in school. Only problem is unemployment is $1,900/mo and my expenses are about $2,700/mo.

The plan is to be in school through May '12. I can't just go and get a part time job or something because anything I make would be deducted dollar for dollar from unemployment, so I wouldn't get ahead that way.

Of course its possible that once I complete school, I will remain unemployed for a while...

When I go back to work, .....

I think you're missing the bigger picture here - in order to fund a CH. 13 you must have income; Unemployment doesnt count as steady income. Trustee will not approve a Ch. 13 plan w/out the means / ability to repay over the course of proposed plan.

[Pandora]

couldnt edit previous post but wanted to also add:

You mention you have a savings and cars you own outright; you will have to be able to exempt everything in full in order to keep it as the CH. 7 liquidation test applies. Anything you cannot exempt, you must pay back in your Ch. 13 plan.

I think you need to talk to a few more lawyers, especially since this particular lawyer is stating filing CH. 13 to solely strip a 2nd is "unusual" because it isnt. We had to file Ch. 13 (under median) in order to strip our 2nd after they failed to work with us for close to a year - it was our only debt in our plan other than property taxes. Our entire 13 is our 2nd mortgage, property taxes, lawyer / trustee fees.

I believe any lawyer who looks at your case and tries to get you into a 13 should be made to turn in their degree - you have no income realistically speaking (sorry...)

[catleg]

The difference between a 7 and a 13 is that, if by some remote chance, you stay in the house a very long time, with a 7 that 2nd can eventually foreclose on the equity you build by paying down the 1st mortgage. In a 13 lien strip you're free of that possibility.

[ByeByeCCs]

Personally I think filing a 13 at this time would be a mistake. From what I have read, you are still making all your payments (1st & 2nd). While it was nice of the bank servicing the 1st to modify I see no incentive for the 2nd to work with you. They are getting their money, why help you if you are paying. I really think you would be safe in stopping payments to the 2nd as BofA only loses if they foreclose. They would get nothing. Stop paying the 2nd and wait a while. Then I would try to settle the 2nd as opposed to the modification. Don't prematurely shell out big bucks to a BK lawyer, use all the tools in your arsenal and then if all else fails see a BK lawyer.

[CaliforniaPl]

I think you're missing the bigger picture here - in order to fund a CH. 13 you must have income; Unemployment doesnt count as steady income. Trustee will not approve a Ch. 13 plan w/out the means / ability to repay over the course of proposed plan.

I've had a couple of lawyers state that unemployment can be used to fund a Ch. 13. Perhaps its different in California. But I'm going to talk to at least a couple more lawyers before I settle on one if this is the route I decide to take.