Option ARM....Use Minimum Payment or Interest Only?

[MI_Debtor]

Have any of you filed with an option ARM on you home and used the minnimum payment amount?

I have an option ARM on my house and I am filing for Ch7. My attorney wants to use the interest only payment amount on the means test and the schedule showing my expenses. He warned me that the trust could object to me keeping the house since the payment amount ($1,492) is almost double the amount of the housing allowance for my area. My peyment is low for my neighborhood but I'm told the trustee can make people surrender homes and get lower ren aparments. I suggested using the lowest payment option ($826) for my mortgage but the attorney says that's not an option since I won't be able to make that payment for long before it would go up. I have done some calculations and I could actually make the low payment for another 4 years before I'd be forced to start paying the interest only payment. That would not happen unless the negative amortization brings the loan balance up to 115% of the original amount. I intend to make the higher payment once the bankruptcy is done. I just don't want to be forced to surrender my house because the trustee says the mortgage payment is too high.

[Beach Bum]

We used the higher interest-only payment in our case to pass the means test. Our income was way over the median. If we wouldn't of done that we would have failed and been forced into a Ch. 13.
The only caveat was that we need to actually make the higher payment during our case and prove that to the trustee.
So we basically stopped making $1700 payments to our credit cards and paid it towards our mortgage.
And yes we had/have a neg-am option ARM. Your payments will reset to the fully amortized amount after the first few years anyways. So the reality is that you do have a higher house payment, but you're choosing not to pay it all adding on to the balance of your mortgage. These loans are very dangerous and are one of the main reasons the housing market is crashing.

[keepmine]

Do you have any equity in the home?

[MI_Debtor]

I have $30K in equity. I put $40K down in December or '05 but some of my equity has been lost due to the negative amortization and costs of refinancing in December of '06. I have about $30K still available if I continue to make minimum payments. My loan is fixed until the end of 2011 and I can go as high as 115% of the original loan amount.

My attorney has used low numbers for my living expenses in order to show that I have the income to make the higher interest only payment. What I'm worried about is the trustee forcing me to surrender my house and move into a cheap apartment so I could pay the difference to my creditors in a Ch13. I'm trying to get a Ch7 discharge and not lose my house in the process. I could get a roommate so I could show that I'm not paying the monthly payment on my own, but I'm worried that the trustee would still force me into a Ch13 because my mortgage payment is high.

[Boscoe]

this is precisely the loan type that those slimy loan brokers pushed too hard in the past few years to aid this subprime mess.

One topic that has been mentioned in this forum before is modifying the existing bk law to allow bk judges or trustees to modify the terms of existing 1st mortgages to more reasonable terms. Tell the lenders "here's the new deal, take it or you get nothing".

In your case, take your interest only payment and make that the fixed rate, or something like that. No more ARM's whose rate skyrockets and forces people into foreclosure, bk or both.

[BroknSoCal]

My attorney says we should use the interest only pmt. ($4400) on our neg-am loan to qualify for ch. 7 bk.
I want to surrender the house under the bk; is that going to throw a wrench in filing ch. 7?
I could pay the int. only if I don't pay any other bill;
right now I've dropped back to making the intro rate pmt. ($2100+$600 HELOC) so I can pay all my other bills utilities, CC debt (65k), car pmt. food etc.
I feel like I'm going to lose my mind trying to figure out what to do and getting different stories from different attorneys.