Intrest only Mortgage Question

[doudis2]

Hello All,

We will be filling CH 7 in the spring. We would file now, but I am trying desperately to repay a 401K loan and put some time between that repayment and the filing date. I have another loooonnnng post on this subject.

Anyway I have two properties, one I am going to let go into foreclosure, the other we must keep. The one we will keep was bought using CC's and an owner carry loan of $60K with 5 year repayment terms. The issue is that it is an interest only balloon type mortgage. So in other words the $337 we have been paying will not pay off the loan in 5 years, obviously as it is interest only.

Here is the question, doing our projected numbers after bkt it shows us having a disposable income of $495, but I plan to give all extra to the mortgage.

What do you think the out come will be? Will they try to force me into CH 13 which would result in us losing the home in 4.5 years anyway? Or do you think they will understand that while I am not required to pay more than the interest that by not paying on the principal I will lose my homestead exemption (my home)?

Thank you

[OhioFiler]

You should look for other expenses to account for the $495 DMI you have. The trustee most likely will not allow you to apply it to your mortgage.

[justbroke]

What do you think the out come will be? Will they try to force me into CH 13 which would result in us losing the home in 4.5 years anyway?

Not enough data provided to reach that conclusion. I have no idea what your actual disposable income is from the Means Test or Schedule J. That's what matters.

Or do you think they will understand that while I am not required to pay more than the interest that by not paying on the principal I will lose my homestead exemption (my home)?

Some Courts are now savvy when it comes to "option ARMs". (Option ARM is the modern day term for interest only loans. I guess it makes it sound better!) These more savvy bankruptcy courts allow you to claim the "option" payment which is, of course, higher than the interest only payment.

So, I'm guessing your rate on your Owner-Carried financing is 6.75% ($60K interest only @ 6.75% is $337.50). The thing is, if you amortized that over 30-years, it would only go to $389.10/month, which isn't that much more to paydown the principal. (A 20-year amortization would get you a $456.22/month payment.)

Even with a $456.22/month payment, if if you're saying your disposable income is over $400/month, I don't see you rebutting the presumption of abuse.

I can't tell you what may be in the mind of the Trustee when you file your case.

[doudis2]

Not enough data provided to reach that conclusion. I have no idea what your actual disposable income is from the Means Test or Schedule J. That's what matters.

Some Courts are now savvy when it comes to "option ARMs". (Option ARM is the modern day term for interest only loans. I guess it makes it sound better!) These more savvy bankruptcy courts allow you to claim the "option" payment which is, of course, higher than the interest only payment.

So, I'm guessing your rate on your Owner-Carried financing is 6.75% ($60K interest only @ 6.75% is $337.50). The thing is, if you amortized that over 30-years, it would only go to $389.10/month, which isn't that much more to paydown the principal. (A 20-year amortization would get you a $456.22/month payment.)

Even with a $456.22/month payment, if if you're saying your disposable income is over $400/month, I don't see you rebutting the presumption of abuse.

I can't tell you what may be in the mind of the Trustee when you file your case.

I do not have the actual data yet from the means test, just what I have put together in an Excel spreadsheet, sorry.

It is supposed to be a 5 year interest only loan at 6.5% plus a small monthly charge from the loan servicing company.

Since we got the loan the owners have sold it to some other company (the name escapes me) but nothing has changed on my end.

When I say disposable income (terminology may be wrong) I mean this is what will be left after paying all my living expenses including the interest only amount of this loan. To keep the property I must pay considerably more over this time frame. We are not sure how just yet but we really hope we can at least keep our very modest mobile home and this land after filing.

We moved from an 1805 sq ft home in the city with a pool and a spa to a 970 sq ft 1981 MH in the desert to try and survive. I sure hope they don't think we upgraded!

Thank you folks for your replies

[iv65536]

Since the balloon is within the 5-year period I would think you could include the $60k principal in the calculation. If you can do that, then you have your negative DMI ($60k / 60 mos = $1k monthly expense), Still, this is a good question for your attorney.

[HHM]

I think the idea of "we must keep the house" and having a "$60,000" ballon in 4.5 years" are mutually exlusive (sort of like there cannot be both an irresitable force and an immovable object in the same universe). Sorry to say. Unless you are able to refi (not likely), or can pay the ballon when it comes due (or pay all $60,000 thru the chap 13), the house is pretty much gone anyway. Also, if the person is at all sophisticated, they could probably object to your chapter 13 plan for lack of feasibility.

[doudis2]

I think the idea of "we must keep the house" and having a "$60,000" ballon in 4.5 years" are mutually exlusive (sort of like there cannot be both an irresitable force and an immovable object in the same universe). Sorry to say. Unless you are able to refi (not likely), or can pay the ballon when it comes due (or pay all $60,000 thru the chap 13), the house is pretty much gone anyway. Also, the person is at all sophisticated, they could probably object to your chapter 13 plan for lack of feasibility.

Thanks for the replies.

Actually we will be filing for CH 7, if that makes a difference. What I'm worried about is the trustee or Judge or whoever makes the decision trying to push us into CH13 thinking we have disposable income when there in fact will be none because of this dilemma.

It just seems that all of my problems are unique.

401K Loan Repayment before filing and this humdinger

[OhioFiler]

What is the current value of the mobile home and your lot?

[BCA2009]

Similar situation

I have a somewhat similar situation:

My HELOC (2nd mortgage) is for 135K. Currently I am only "required" to pay interest at a variable rate. My current payment is about $425 per month (interest only), but it obviously varies month to month. I think I pass the means test (by my caculations) with the current payment. I have an attorney and he is currently working on my numbers.

The loan has a provision where I can irrevocably lock in a current rate and begin paying principal and interest amortized over the remaining life of the loan. So if I needed a little more allowable expenses to pass the means test, I could permenantly change my payment to about 700 - 750 per month.
It would be a struggle to make that payment, but if that's what it would take to pass the means test, I think it would be worth it (I've got to eventually start making principal payments anyway). I plan to re-affirm the loan.

I wonder how the trustee would view this. I assume I would have to wait a while after changing the payment amount to file, so I would have a history of paying this amount. I wouldn't be incurring any new debt. Just making a permenant decision to began paying principal.

Hopefully it won't come to that. But I was interested in opinions on how this senario would play out.

Thanks,

[doudis2]

What is the current value of the mobile home and your lot?

It is hard to determine as there as so few comps and prices are still falling, but I think the MH is worth about $8k and all together land and MH about $150K. The AZ homestead expemtion is $120K.