Principal reduction before BK

[signal]

I have an appt with my attorney on monday, but I am finding it hard to sleep at night and just looking for some thoughts.

I had planned on filing BK in march 2010, but I just received $50k when the company I work for merged. So I have this cash. My total unsecured is about $160k, also have a $340k upside down mortgage.

I want to take the money and use it to negotiate with the bank for a lower interest rate, and pay down my house. My home, the entire amount, is exempt in Florida where I live. Paying $60k down on my mortgage, and adjusting to a better rate, and compressing the loan to 15 months, will keep my payment the same but save me hundreds of thousands of dollars. Its far more powerful than paying other creditors.

I am concerned that there could be an issue with this, and if there were how would a trustee handle it? I mean, if I pay down my house $60k its still hugely upside down, so there is no equity, so I dont see how they can take the house. I would delay the BK at least a year after making this reduction, and the reduction would be a requisite for myself to get a loan mod.

Has anyone done something like this? its not like I am taking cash advances off my cards to pay down my mortgage.

[daytona]

Ask your bank about "recasting" the mortgage. What happens is if you pay down 50k they recalculate the mortgage payment based on the new principal amount for the same term. So if you owed 350k at 6% with a 2,000 payment for 27yrs, you would now owe 300k at 6% with 1,700 payment for the same 27 yrs. (I just made these numbers up, but this is how it works. )

The laws are differnet in every state and on top of that every court and trustee look at things differently...onlt an attorney can give you the answer for your question with any level of confidence.

[signal]

I want the payment to stay the same, and the term to be reduced. The combination of 1) paying down the mortgage, 2) getting an interest rate reduction and 3) reducing the term, keeps the payment the same, but saves hundreds of thousands of dollars on the loan.

I read where with the new BK laws, you can only exempt say $125k of interest in property which was paid 1215 days prior to filing. Well, I probably made 90k in "payments" over the last 1215 days, but thats probably only $20k in principle, add to that my 60k principal reduction and that is still well below what is exempt.

i wish someone had some experience in this in this forum for florida, but i will see my attorney on monday.

[BCA2009]

You don't say of you are married or not. But if you haven't already contributed to a IRA this year, you may consider putting in $5000 each for 2009 (assuming your wife earned at least that much in wages) and then $6000 each in January for 2010. That would get rid of $22,000 and you wouldn't be dumping it into a house you are so upside down on. But I would consult with an attorney first to make sure the trustees in you district wouldn't have a problem with it. But generally from what I have read is that normal (in relation to your income) retirement contributions are allowable.

Just curious, why would you want to keep a house you are so upside down on?

Good luck

[signal]

Just curious, why would you want to keep a house you are so upside down on?

Good luck

Because if you just look at the principal then yes, it looks bad that the house is upsidedown, however if you look at the amortized true cost, some good things happen.

My loan has 340k remaining, at 5.99%, 26 years remaining, so 671k in payments yet to be made.

If I had this house for a reasonable price, say 250k, 30 year mortgage, then thats 539k in payments to be made.

If I prepay 60k on my current loan, compress it to 15 years, and get my interest rate lowered to 4%, then I would only have 372k in payments, so it shaves 300k off the true cost of my home by doing this adjustment, which would be facilitated by this pay down.

So I would pay less for my home, even though its upsidedown, than many people pay for a home of 250k in a traditional 30 year mortgage with a decent rate of 5.99%, substantially less.

Its just a thought and in florida since we have liberal homestead exemptions, and I have to protect this money somehow, its just something I am consulting with a lawyer about.

[BCA2009]

I understand. I misread your intial poat and thought you meant you were upside down by $340.

Good Luck,