Unable to afford mortgage

[mbmurray]

Hi, new to board, have a question about my situation. My wife and I recently built a house, costs went way above what was initially set. Now with the current mortgage, it is tough to pay each month while still paying for necessities like utilites, car payment, etc.

The mortgage and car are in my name only, so I would only file not her. I make way over the state median to declare chapter 7 (100K), but looking at the means test and using the standard IRS expenses plus car payment and mortgage, I am negative because my mortgage payment is so high.

My unsecured debt is not so bad ~12K (all in my name), I could pay that off by reaffirming it if I had to, but basically I want to surrender the house. So that would mean I could file chapter 7? If no, and I had to file Chapter 13, could I still surrender the house? I do have equity in the house and could get a HELOC or 2nd, but I think that is just a temporary fix not a solution.

Any thoughts would be appreciated. Thanks.

[lrprn]

...looking at the means test and using the standard IRS expenses plus car payment and mortgage, I am negative because my mortgage payment is so high.

If you make $100K a year, you are far above the median income for any state which makes it highly unlikely you will qualify to file Ch 7 given the very low amount of unsecured debt that you have. However, only an experienced bankruptcy lawyer can tell you that for sure. Did you actually put your income and expense figures into the Means Test B22A for Chapter 7 and complete all the sections to verify that you truly do not have more than $167/month disposable income?

Some additional information would be helpful. Which state do you live in? How high is your mortgage payment? How much equity do you currently have in your house? Have you tried to sell it? Do you have other secured debt besides your mortgage?

[SinkingFast]

You are right about the HELOC being a temporary fix. Basically, you'd convert unsecured debt into secured debt. You're just shuffling cards from one place to another and not really getting ahead.

You know your house is driving your debt. You already recognize that. That puts you leaps and bounds down the road to making an appropriate decision about your financial situation.

What about the car?? Can you sell or trade for something less expensive/lower monthly payment?? Will that help significantly toward meeting the bottom line every month??

You say you have equity, which means you have buffer room to liquidate the house more quickly than if you had a 100% LTV that would force a full market price sale. Have you considered selling at a reduced price to get a quick offer?? Spring is right around the corner. Prime home buying season is at hand. May and June are the biggest closing months of the year for Realtors.

Don't get caught in the trappings of pretended wealth. Make up your mind to do what you have to do and do it.

[avega]

If you have equity, why dont you look at different options... I know that the market is down and selling will take more months than you are able to handle, maybe offering seller financing will be an option. There are people out there that cant qualify for a loan, like us getting out of bk's, but may be able to afford to pay for a home minus the down payment. You can offer them to pay you your mortgage payment, maybe a little bit more, add them to your title as beneficiaries in a trust, or add them to title, but with the condition of signing a quit claim deed off just in case (check with a title attorney). That way, after 12 months (giving them time to show vested interest in the property) you can let them refinance the house and sign off of the title, and have them give you some cash from closing. That way they are buying through a refinance and are happy, and you dont have a voluntary or involuntary forclosure and walk away with some money you otherwise would forfeit....

Just an idea....

[mbmurray]

Thanks for the replies. Answers to some of the questions. I live in the state of virginia, I have no other secured debt other than the car. mortgage payment is 4500/mo. So using that amount, car payment plus standard expenses puts me negative for disposable income on the means test. I could be wrong, am I?

I can see a hard time selling the propetry in the sense that it is actually two houses on the lot, a primary house and guest house. 2 acre lot, 1 acre per house. Guest house was the original house, primary house newly built house, houses haven't been subdivided.

[bige1030]

Since you plan on surrendering the house, the mortgage payment won't count on the means test. You would probably be forced into a plan.

You may surrender your house in any chapter of bankruptcy.

I'd highly recommend that you look into nonbankruptcy options for getting rid of the house. That is especially important if your secured debt is $922,975 or more, since you would have to file Chapter 11 in that case. Those are notoriously complicated and expensive.

If you can file a Chapter 13, that would be great, since you could probably do a 100% plan (i.e. pay 100% of all allowed unsecured claims). If you can pay it off sooner than 5 years, you can get out of Chapter 13 sooner. Also, if you're stuck in the unfortunate situation of filing bankruptcy again, you can get a discharge sooner than you otherwise could.

[SinkingFast]

Since you plan on surrendering the house, the mortgage payment won't count on the means test. You would probably be forced into a plan.

That may not necessarily be the case.

http://www.bankruptcyforum.com/showthread.php?t=8093

As you'll see in this Opinion, contractually due payments were allowed to be annualized forward even tho the property was being surrendered.

It's really gonna depend on your Trustee/Judge/UST how this would shake out for you. But any attny you'd hire would have legal presidence to include your mortgage payments on the Means Test even tho you intend to surrender the property.

[bige1030]

That would be awesome if it were universally true! Then we could actually give the OP a definite answer.

[mbmurray]

My secured debt is under $922,975 so that isn't an issue (~830K). So if I reaffirm in chapter 7, the mortgage, it definitely can be included on the means test, but that kind of defeats the purpose for me.

Could I declare chapter 13, surrender the house (not responsible for deficienies, tax liabilities, etc), and then be on a plan to pay off the unsecured debt which wouldn't be a problem? That would be doable. (sp?)

You mentioned other non bankruptcy options to get rid of the house, but as I mentioned the property actually contains two houses, so it is much more difficult to sell than an ordinary single propetry home, which options do you suggest?

[SinkingFast]

That would be awesome if it were universally true! Then we could actually give the OP a definite answer.

You have to pay particular attention to the last paragraph of that posting:

Finally, the court noted that even if a debtor satisfies the means test,

There is no written definition for "Totality of Circumstances". No,..... "This is what 707(b)(3) is. This is what it isn't." So the Court is pretty much free to apply 707(b)(3) about any way it sees fit.

Common sense would seem to dictate in rulings in this situation.

ie,........ A Debtor/Filer had a significantly high income at the time the debt was incurred. Then a significant change in the Debtor/Filer's life occurred. Such as loss of job, illness, injury resulting in significant, if not total, loss of income. In that instance, the UST could uphold the Means Test as filed, and agree the Presumption of Abuse does not Arise.

As opposed to,........... A Debtor/Filer who has had no significant life altering event and still earns the same or more than they did when the debt was incurred. In that case, the UST would be within their bounds to challenge the Means Test as filed and claim that Presumption of Abuse does Arise.

In the 2nd scenario, it's up to the Debtor/Filer to defend themself against the UST's reasoning.

These examples are the clear cut scenarios with many, many BK cases falling into the grey area in between.

How this could potentially apply to the OP's situation would depend on lots of factors not in evidence from the OP's posting.

I would suggest, MB, you schedule 3-4 Consult appts with attnys who specialize in BK. Get professional opinions on your particular situation.

[SinkingFast]

My secured debt is under $922,975 so that isn't an issue (~830K). So if I reaffirm in chapter 7, the mortgage, it definitely can be included on the means test, but that kind of defeats the purpose for me.

Could I declare chapter 13, surrender the house (not responsible for deficienies, tax liabilities, etc), and then be on a plan to pay off the unsecured debt which wouldn't be a problem? That would be doable. (sp?)

You mentioned other non bankruptcy options to get rid of the house, but as I mentioned the property actually contains two houses, so it is much more difficult to sell than an ordinary single propetry home, which options do you suggest?

A lot depends on your particular market. The neighborhood the property is located in. Is it common in your area to have a "guest" house on the property?? If so, then selling may not be an issue.

Our area has one of the highest Foreclosure rates in the entire country but properties valued at $350K and up continue to sell well, and quickly.

This is really a question for a qualified Realtor in your area to answer.

I am guessing, if you were to try to sell the 2 properties seperately, that would probably involve a rezoning. If that's the case, that can be time consuming, cumbersome, and require legal assistance to perform. You're probably looking at a few to several months just for the rezoning process before you could even begin the marketing. And, you'd probably have to hire an attny to represent your interests for that.

Have you thought about renting the older home to generate additional revenue?? Is that feasible??

((Rezoning isn't the word I was looking for but the only word that came to mind at the time.))

[mbmurray]

Yeah it takes a while to subdivide the property, so I don't think that is viable. The older home is where my mother in law currently lives at, so we can't rent that out.

As to my other question: Could I declare chapter 13, surrender the house (not responsible for deficienies, tax liabilities, etc), and then be on a plan to pay off the unsecured debt which wouldn't be a problem? Can I do this?

[bige1030]

any other thing of value purchased within 1 year of filing. Debtors have successfully used this in court to argue that a surrender fully satisfies the debt (in Chapter 13), and the creditor has no deficiency claim.

[mbmurray]

The property is appraised at 1.1M, while my mortgage is ~830K. So my mortgage is way under what the property is appraised at, but since it is actually two houses on the property and not one, that is why I am worried it would sell/foreclose for under what my mortgage is and I would be liable for the deficiency.

Is that how it works, liable for what is sells at not what it is appraised for?

And yes, it has been under a year since I have gotten the occupancy permit for the house.

[bige1030]

When the property sells, figure this subtraction:
(mortgage balance) - (what it sells for)

If that amount is positive, your creditor could file a claim for that amount. Then, you would have to pay on it as you would to other unsecured creditors.

If it is negative, take the negative sign off, and that is the amount of your equity that the trustee can administer. If you can exempt some of it, the trustee will give it to you. Then, s/he will distribute the rest to other unsecured creditors.