negative disposable income

[seanf12]

If you are showing negative disposable income (say around -$200 or os) on your schedules I & J, but still want to reaffirm both your cars and mortgages, is it possible that the judge/trustee would reject your reaffirmation, because you are negative each month?

[keepmine]

If your lawyer signs off on the reaffirmastion, there will likely be no problem. He/she has to attest that reaffirming will cause you no hardship and is in your best interest.

[seanf12]

Thanks

How about a mortgage? We are significantly underwater but can make the payments post BK

[keepmine]

Thanks

How about a mortgage? We are significantly underwater but can make the payments post BK

Why on earth would you want to reaffirm that debt? Bk is about a fresh start. Nothing fresh in emerging from bk with a negative net worth. Your lawyer will do you a huge favor if they don't approve the reaffirmation.

[debtmonster]

Why on earth would you want to reaffirm that debt? Bk is about a fresh start. Nothing fresh in emerging from bk with a negative net worth. Your lawyer will do you a huge favor if they don't approve the reaffirmation.

If you don't pay a mortgage, then you're going to pay rent. If you're going to pay rent, then all you're doing is paying somebody else's mortgage, property taxes and insurance and you're not getting the mortgage interest tax-write off. I would think a mortgage debt would be the only debt you'd want to re-affirm in a Chapter 7 BK.

I was supposed to have 2 potential job openings coming up but if they flop, then I'm seriously considering Ch. 7. I'm fighting tooth and nail to keep what we have. It took us years of hard work to acquire all of the assets we have now. I don't want to lose all of them and have to spend 10 years getting them again. My wife finally got a job yesterday, but it pays commission. She earns 5.25% of the sale. Yesterday she only sold $500 worth of merchandise. It costs about $10 in fuel for her to commute to work. Do the math and you'll see what we can't live on this. The cost of doing business exceeds the profits at this point.

[seanf12]

Primarily the reason why we want to reaffirm the debt is because of where we live. The school system and neighborhood are ideal for our family (3 young children), and to up and move them now could be traumatic for them. Our number one goal through all of this is for our kids to be zero impacted by this mess. Not to mention what debtmonster mentions above, which I tend to agree with.

The cars are also necessary for us....with 3 small kids we need a van (or something similar), and because of my commute to work, I need a reliable 2nd car which is good on gas

[debtmonster]

Primarily the reason why we want to reaffirm the debt is because of where we live. The school system and neighborhood are ideal for our family (3 young children), and to up and move them now could be traumatic for them. Our number one goal through all of this is for our kids to be zero impacted by this mess. Not to mention what debtmonster mentions above, which I tend to agree with.

The cars are also necessary for us....with 3 small kids we need a van (or something similar), and because of my commute to work, I need a reliable 2nd car which is good on gas

Those sound like good reasons to me.

One thing that is always a big concern to me is that if you give your cars back in a BK (as in my case, each case is $10-15k upside down), and when you do a BK, you're not allowed to have any assets (such as $5k cash, etc.), then how does one have the money to buy a replacement car with no cash in hand when nobody else will finance? The Buy Here Pay Here places all want HUGE down payments. If they took my cars tomorrow, I would literally starve to death. The Winn Dixie is 18 miles from here... way too far to walk or ride a bike. It would take at least 5 to 8 months to save up the money for a used car. There is no public transportation for over 30 miles from here. We live in a very, very rural area, way out in the woods. My family is so broke that they would not have the money to lend me to buy a used car. This is one of the things that scares me from filing bankruptcy. Everything is a catch-22 for me. I want to file BK, but I don't want to starve in the process.

I wish Florida would let me have $5,000 cash in my checking account at the time of filing so I could go out and buy a used car. Auto Trader has a TON of nice, low mileage cars for $5,000 to $7,000.

The most liquid things I have right now are some car stereo parts. I tried to trade those for a 250cc motorcycle the other day but the one guy I tried was not interested. Where we live, it's all rural highways. You need something that will do at least 70-80 MPH. That's why I wanted a 400cc scooter. I've been researching scooters all night since they get the best gas mileage. The one I wanted has a lot of storage space so I could put a gallon of milk and other stuff under the seat if need be.

I wish I could simply barter what belongings I have for some kind of vehicle instead of having to sell everything I have for 5 to 10 cents on the dollar. And what really ticks me off is that the stuff I have is super nice and in excellent condition. Even so, nobody out where I live has any money, therefore it may be worth a lot to me, and did cost a pretty penny when it was new, but out here, things are worth much less than in other areas.

[keepmine]

If you don't pay a mortgage, then you're going to pay rent. If you're going to pay rent, then all you're doing is paying somebody else's mortgage, property taxes and insurance and you're not getting the mortgage interest tax-write off. I would think a mortgage debt would be the only debt you'd want to re-affirm in a Chapter 7 BK.

I was supposed to have 2 potential job openings coming up but if they flop, then I'm seriously considering Ch. 7. I'm fighting tooth and nail to keep what we have. It took us years of hard work to acquire all of the assets we have now. I don't want to lose all of them and have to spend 10 years getting them again. My wife finally got a job yesterday, but it pays commission. She earns 5.25% of the sale. Yesterday she only sold $500 worth of merchandise. It costs about $10 in fuel for her to commute to work. Do the math and you'll see what we can't live on this. The cost of doing business exceeds the profits at this point.

You do not want to reaffirm mortgage debt where, you are upside down by a signficant amount in the loan. Renting is far better than coming out of bk with a large negative net worth.

[keepmine]

Primarily the reason why we want to reaffirm the debt is because of where we live. The school system and neighborhood are ideal for our family (3 young children), and to up and move them now could be traumatic for them. Our number one goal through all of this is for our kids to be zero impacted by this mess. Not to mention what debtmonster mentions above, which I tend to agree with.

The cars are also necessary for us....with 3 small kids we need a van (or something similar), and because of my commute to work, I need a reliable 2nd car which is good on gas

Were it me, the kids would just have to be traumitized. It's all about the money. Are you going to be better off financially post bk or not. Noway is it rational to expose yourself to debt that could have been discharged.
At least, don't sign the reaffirmation and see if you can just ride through.
You have to ask yourself a lot of questions dealing with, could you afford the mortgage with a job loss or salary reduction to, does it make fianncial sense to make any needed house repairs to a home where you have signficant negative equity.

[HHM]

If you don't pay a mortgage, then you're going to pay rent. If you're going to pay rent, then all you're doing is paying somebody else's mortgage, property taxes and insurance and you're not getting the mortgage interest tax-write off. I would think a mortgage debt would be the only debt you'd want to re-affirm in a Chapter 7 BK.

I hear that a lot and it is such f'ing garbage, it is a way to rationalize a bad decision. Keepmine makes some very valid points. You do not want to reaffirm a mortgage if you are upside down in a house by 10-20% or more and have unstable job prospects.

You really have to make this decision by the numbers.
1. Compare current mortgage payment with potentional rent payment (note, most people, because they are emotionally attached to the house do not adequately research rentals). Plus, you need to be realistic about your "needs".
2. How long would it really take you to get out from under the negative equity. If you owe $300,000 on a house now worth $240,000, how long would it really take you to get to even. Assuming the real estate market stays flat for the next 3 years (very realistic, probably optomistic assessment) and assuming after that we return to average appreciation of 5%, it would take you about 8 years (maybe 7) to get back to even. Thus, your payments during that 8 years are a wash, you are only buying down negative equity and paying interest.

Ask yourself which is better right now...taking 8 years to get back to even on your current house, OR surrendering your home, waiting two years, renting, saving money for a down payment (to get your credit back on par), and buying a house at or near the bottom of the market and start building POSITIVE equity from the get go.

[debtmonster]

Houses

I think you should look at a home the same way you do a car. If everybody was worried about how negative they were the second they drove off the lot, there would be NOBODY buying new cars as just about everyone has negative equity in a car unless you're rich and can put a huge down payment.

A house is the same thing. Who cares what's is worth or not. You buy a house to live in. You shouldn't worry about the market value of it so much the same as you do a car. This is why people should think long and hard on a house they buy and not buy junk. This is why we bought the house we're in. I love our house and wouldn't mind keeping it for 30 years. We could not rent an apartment for what we're paying in mortgage payments. I've done the renting game. I'm fed up with all of their rules and noisy neighbors and people vandalizing my car or putting door dings and scratches on it.

If you buy a house with the intention on moving, then that person should have never bought a house to begin with. This is why I did not want to settle for a condo. Once you have a condo, it's very hard to get rid of it because you're stuck paying high association fees. I can't see paying $300/mo. while they guy cutting the yard once or twice per month is getting paid $10/hr and would take 3-10 minutes to cut the yard.

I hate our location of our house, but we love our house. It would be nice if it was about 500-700 sq. ft. bigger, but so be it. That would just mean a higher electric bill anyway.

You can say it's rationalizing all you want... but when I sit here with Turbo Tax and put in that mortgage interest amount, that's a good $10,000 write off for me. And that's ME with a CHEAP HOUSE! I could only imagine what people with $300k homes are writing off. I would think if you had a mortgage payment of $2500/mo., at least $2200/mo out of that $2500 would be a write off. So for many people, that could be a $26,000 dollar write off. How the hell are you going to get a $26,000 write off RENTING?!?!?!!?

Without that, YOU PAY TAXES on that $26,000. Without my mortgage interest write off, my taxes go up another $1,000. NO THANKS.

Some of what you say makes sense. The whole issue is that people are buying houses for the wrong reasons. You should buy the nicest house you can afford and stay in it for at least 10-15 years. If you buy a house that doesn't meet your needs, then you'll be simply dieing to get out of it. Renting is a short-term solution to a long-term problem. You need to eventually have a house PAID FOR IN FULL by the time you retire. That's the whole idea of being a home owner in the first place. You use your youth to build equity. When you're 65, it's time to be out of debt so you can afford to live on social security and what little savings and investments you have.

Also when people buy a house... do the math...

Your household income = Y
z = 3y

t = cost of home

IF t > z THEN
don't buy house
ELSE
you can afford it. Buy it
END IF

Simple logic there. Problem is, people making $50-80k were buying $300-700k homes when they had absolutely NO BUSINESS doing that. My sister is a prime example. She made like $35k as a school teacher and bought a $260k home. DUMB DUMB DUMB. $35k x 3 = $105k.

$105k should have been the most expensive home for her to buy.

Why these banks allowed all of these people to buy overly expensive homes is beyond me. When I bought my home, the banks wouldn't allow me to buy more than 3x my income. I can afford my mortgage with no problems. I'm not going in default. It's all of the other stuff I can't afford.

Oh well.

Cheers.

[HHM]

I agree with you to some degree, but you really can't ignore the current condition of the market and the financial realities. Plus, you are oversimplifying the mortgage tax deduction a bit, like you said, you get to write off $10,000 in interest, but how much tax did that actually save you, $1,000 (granted, that is a lot, but it is not huge amount). Look at it this way, if you rented a house for only $83 less per month than your mortgage payment, you would get that SAME $1,000 savings.

You certainly have to take the mortgage interest tax write off. But in a negative equity situation, it really doesn't matter that much, you are still net-negative.

It really depends on the market. For example in my area, it is way cheaper for me to rent then to buy even factoring in the mortgage tax deduction.

You are correct, many people over the last 5 years bought "too much" house. But the question for the OP is, what does he do know, and frankly, I believe he would be MUCH BETTER off dumping his money pit (after all, that is what a negative equity situation is), and buying a house 2 years from now and keeping THAT house for 30 years.

[debtmonster]

I agree with you to some degree, but you really can't ignore the current condition of the market and the financial realities. Plus, you are oversimplifying the mortgage tax deduction a bit, like you said, you get to write off $10,000 in interest, but how much tax did that actually save you, $1,000 (granted, that is a lot, but it is not huge amount). Look at it this way, if you rented a house for only $83 less per month than your mortgage payment, you would get that SAME $1,000 savings.

You certainly have to take the mortgage interest tax write off. But in a negative equity situation, it really doesn't matter that much, you are still net-negative.

It really depends on the market. For example in my area, it is way cheaper for me to rent then to buy even factoring in the mortgage tax deduction.

You are correct, many people over the last 5 years bought "too much" house. But the question for the OP is, what does he do know, and frankly, I believe he would be MUCH BETTER off dumping his money pit (after all, that is what a negative equity situation is), and buying a house 2 years from now and keeping THAT house for 30 years.

There is no way you will ever find a house as nice as mine for what we are paying. A house like this down where the big paying jobs are would cost me 2-3x as much to rent in what I pay in a mortgage payment.

I had the choice of spending $1200/mo. for a small 2 bedroom apartment or $821/mo. for our 3/2 with 2 car garage.

Maybe in the early 1990's I could have rented for a little more than I am paying but not in 2007-2008.

Yeah, houses have come down in price, but they have not come down to the levels they shot up from. All of this crap started around 2001-2002. You can't get a house in 2008 for what they went for in 2002. The prices have doubled since then. What good is it if you do the math and do 100% markup and discount 5 to 15%?

Let's say a house in 2002 was $200k. Then it shot up to $400k. What good would it do to get it for $380k? I keep hearing all of this gloom and doom in the news about homes going down in value. Then why am I not seeing that $200k home from 2002 selling for $150k? THAT'S WHAT I WANT TO SEE!!!

I'm tired of hearing the world complain about the housing market when all of the prices HAVE GONE UP since 2002!! And buying a foreclosure isn't much cheaper. It's like buying a repossessed car. That's a nightmare from the previous owner who probably drove it for a year without doing an oil change (not speaking of an Amsoil oil change of course).

I just don't like the logic I am seeing for everything. I am a programmer by trade and I look at things logically, not emotionally.

[HHM]

Unfortunately, most of the people facing the foreclosure crisis DID not buy their house in 2001-2002 (otherwise, they would not be facing negative equity).

I am not telling YOU to sell your house, the numbers seem to make sense for you, but the numbers and market reality DO NOT seem make sense for the OP. All I am really saying is for the OP to look at things more closely. I don't know what rentals cost where he lives, I am just telling him he should find out, (in earnest), I am just telling him to make the calculations.

This whole thing started as a question of whether the OP should reaffirm, which HE SHOULD NOT DO. The job prospects are too unstable by his own admission, and he has substantial negative equity, that is a recipe for post BK financial disaster. Keepmine raised the additional point of whether it is worth it to even keep the house and that is how we got to this scenario.

My advice was, definitely do not reaffirm and the OP should carefully consider whether he should keep the house. If the numbers work out into his favor, ALL THINGS CONSIDERED, by all means, keep the house (i.e keep making payments and do a ride through). I merely pointed out that digging out from substantial negative equity is almost never worth it from a financial perspective, especially given the unique market conditions such that the OP could surrender the house, wait 2 years to rebuild credit, and buy the same house either for the its CMV today, or even for less, and by doing so, the OP would come out far ahead of where he would be if he simply kept his current home.

[debtmonster]

After reading everything on here... I would say, depending on the age of the person, DUMP IT ALL and start over.

Like many people said... you can always buy it again. In my case of buying this house in 2005, we moved in with $3,000 down. The house was $120,000 brand new. If you tried to do this again, it would not fly. Next time around I would need $24,000+ cash down. It would take YEARS and YEARS for me to save that. And if I was paying rent all that time, I would not be able to afford to save any money. Saving money for a down payment and renting is similar to paying 2 mortgages. It would be to difficult to save something like $1500-3000/mo. to quickly stockpile that unless I was a 6-figure income earner again... which those days seem to be long gone now.

Maybe I can try again in the year 2015 to 2018 after all this mess settles down. What do you think?

For what we paid for our house, we could not even buy a STUDIO CONDO (not even a 1 bedroom) back where we used to live for the price paid. The condo's were going for $250-300k. WHAT A JOKE!! I can't believe people would pay that much.

If it's all about supply and demand, why don't people simply say, "NO, I AM NOT PAYING THAT. I offer $100k. Take it or leave it." If every single person did that and stood their ground, we would not have the housing mess we have today.