Need Advice/Help Ch 13 vs 7

[travelmama]

Some of you on here will be able to answer these questions (not taken as legal advice) better than the paralegal who doesn't seem to know much at the atty's office.

about a year ago we qual'd for ch 7 but were right in the middle of trying for a loan mod, wanting that to go thru. It did, got a smoking (nice) deal, and was able to pay for a while before falling behind again. (slow season for business) Now we must file something to save the house. Letting it go is not an option, it's also our business and sole source of income (self employed).

We have some unsecured cc debts. haven't paid on them in a while. One is suing us.

We have no bank account assets etc to speak of, no 401k's, etc.

A 2nd junior lien on our mtg was "written off" 2 years ago after we hadn't paid on it for a looooong time.

Very little assets that won't fall under "tools of the trade" used to run our business.

Our MAIN AND ONLY goals for filing are (1) save the house (2) improve our (500-ish) credit and (3) get rid of the cc debt and pending lawsuit.

MAIN FEARS FOR FILING = super high trustee pmt, 2nd lien coming back up, being in plan too long, credit report not being able to improve til after discharged.

We've already been reducing expenses and living lean for the past year, but the damage was already done to the credit report and we can't even qual for a replacement vehicle now.

So my questions are:

1. i would like to file ch 7 but is it true you MUST be current on mortgage to do this? Is it possible to file 13, get current, then convert to 7? Or, prior to filing Should i make some kind of deal w/mortgage co for a ridiculous (unaffordable) repayment plan and wait and do ch7??

2. If a 7 will not work, Will that 2nd mtg come back to haunt me and now will have to pay it, possibly pay a ton of arrears in a ch 13 plan? Other than this, the payments for a ch 13 plan would be pretty reasonable.

3. How long after filing either a 7 or 13 do you get to begin rebuilding credit?

thanks for all the help, this is a great forum and i enjoy reading how many people you have all helped !!

[justbroke]

1. i would like to file ch 7 but is it true you MUST be current on mortgage to do this? Is it possible to file 13, get current, then convert to 7? Or, prior to filing Should i make some kind of deal w/mortgage co for a ridiculous (unaffordable) repayment plan and wait and do ch7??

Let me answer technically first. Yes, it is true that it MUST be current or the mortgage company will pursue relief from the automatic stay in order to have the ability to foreclose. Now, in reality, working with the mortgage company to keep the property, by getting a forbearance or an installment plan, is a way to fix this. However, you are playing with fire! The creditor does not need to "work" with you, in that respect. However, there are pre-foreclosure things that they must do -- depending on your State -- which may actually include mitigation which would force them to allow an installment plan.

The second mortgage is going to come back up. In a Chapter 13, they'd be a secured creditor and you'd need to pay all arrears PLUS the payment. That is, unless you can lien strip the second. I'm assuming that since the 2nd has not bothered you, then your home is probably underwater. For that reason, you should be able to strip the 2nd. (However, they'll be considered unsecured and may receive "something" in the Chapter 13.)

2. If a 7 will not work, Will that 2nd mtg come back to haunt me and now will have to pay it, possibly pay a ton of arrears in a ch 13 plan? Other than this, the payments for a ch 13 plan would be pretty reasonable.

Yes! The 2nd has a secured interest in your property as evidenced by a recorded mortgage and note. I don't know what your position is (upside down or rightside up), but that could become a factor later; especially as the housing market improves. That could be years down the road, but that's nothing more than a deferred issue.

3. How long after filing either a 7 or 13 do you get to begin rebuilding credit?

Immediately. In fact, most in a Chapter 13 exit with "good" to "very good" credit. I'm 1 year out of my Chapter 7 and my credit is in the "good" range (> 640) and approaching "good" (> 680).

With an unstable income, you may continue to have issues with paying your mortgage. It is for that fact alone, that discharging the mortgage -- if in a Chapter 7 -- would probably be best. That means, not reaffirming. However, that also means paying on time and consistently after filing.

[mountanddo]

Immediately. In fact, most in a Chapter 13 exit with "good" to "very good" credit. I'm 1 year out of my Chapter 7 and my credit is in the "good" range (> 640) and approaching "good" (> 680).

This is after you've completed your Chapter 13 am I correct? Not after filing or while you are in it.

[HHM]

It is immediate, as in, right after filing.

[mountanddo]

It is immediate, as in, right after filing.

Well, that is great news...Thanks!

[basketsbears]

So soon after starting a Ch 13 one's credit improves? I thought it was after the discharge?

[justbroke]

So soon after starting a Ch 13 one's credit improves? I thought it was after the discharge?

What actually happens is this. Soon after you file, all of your creditors change the status of your account to "Included in Bankruptcy" (Wage Earner Plan -- Chapter 13, or Discharged in Chapter 7), and zero out your balance and past due amounts. As the fact that you filed "settles", the score will continue to improve as things age. Remember, a credit report is mostly about time and money!

Chapter 13 filers generally should be in the "fair" credit range of 620+ within a year of filing. That's very generally speaking and is consistent with what I have seen. However, a lot of your score does balance what your payment history was like before filing.