Just a question..can you walk away from a mortgage while in Chapter 13

[sophieanne]

This is strictly curiosity. On my trustee's website he writes one of the benefits of Chapter 13 is that you can decide after your case is in progress that you can surrender your home. Is that really true?
I only have a first mortgage that I pay outside of the plan. The only frustrating thing to me is that we only have one mortgage and we are $80000 underwater. Because of this we can't even refinance. Fortunately we have an adjustable rate mort that is very low (3%), but i'm concerend that one day it may not be and without equity who knows what could happen.
Just curious if anyone knows.
I hope everyone is having a good day; it's warm and sunny here is Wa State.

[LadyInTheRed]

Yes, you can walk away, but you have to modify your plan to do so.

A Mortage is not dischargeable in a Chap 13 unless you surrender the property. If your mortgage is a recourse loan (e.g, the terms of the mortgage and state law allow the bank to go after you for a deficiency), you should decide during your Chap 13 whether you want to walk away so that you can modify your plan and make sure the mortgage is discharged.

I'm right where you are: underwater mortgage (by about $100K) and an adjutable rate currently at 3%. My rate is capped a 10% and cannot increase more than 2% in any year. So, if rates go up, I should be able to adjust my budget by 2% a year, especially if I continue to get annual raises of around 2% like I have for the last 10 years. Do you know if your loan has a lifetime and annual cap? That would be a good thing to factor into your decision. I couldn't rent anything equivalent for less than the cost of ownership. Also, my mortgage is no-recourse. So, walking away later may damage my credit rating, but that'll be the extent of the damage. I'm hoping that by the time the interest rates go up, the value of my house will have increased and I will have paid down enough principal to have enough equity to refinance. Prices are already increasing very slowingly. Fortunately, I live within an easy commute to San Francisco where the housing market didn't crash and prices are sky high. So, there are always more people like me who work in S.F. and want to live in my more affordable area. So, I have hope that the value of my home will continue to increase, even if it never gets to what I bought it for.

[sophieanne]

Thank you for your note LIR...I really appreciate it. Fortunately sounds like we have very similar mortgages. The highest the mortgage could ever go is 10% and the yearly cap is 2.25%. WA state is the same as yours - it's a no recourse state. I'm hopeful prices will rise...eventually..but unfortunately prices are still dropping here. Our mortgage is very affordable so we'll be staying for the next couple years for sure. Thanks again!