Chapter 7 or 13?

[Tom111]

Hello,

I've discovered this forum a few days ago and find it very informative and helpful. Thank you all for your great contribution.

I will soon have to shop around for an attorney but for now, still in the information gathering phase. Any recommendations or insights you could share would be greatly appreciated.

So, here's the situation for me and my wife (no kids).

Income:
gross 8000
taxes 1500
living expenses 2000
child support 1500
1st mortgage+tax+insurance 3000
HELOC 500
credit card minimum payment 2000
auto loan 500

monthly shortfall 3000

Debt:
1st mortgage 400k
HELOC 50k
credit card 85k
auto loan 15k

This is southern california.

With the inclusion of mortgage I can easily pass the means test. Without it, there's no way.

My questions are.

1. Will I be forced to file chapter 13? After BK discharge and surrendering the house, I'm looking to rent a place for 2k/month near my work. This would leave me 1k/month surplus. I'm not certain if this would suggest a lower chance of success if I tried chapter 7.

2. If I will have to file chapter 13, will I be forced to keep the 1st mortgage? I've heard of Chapter 13 of Title 11 in which whatever monthly surplus after the 1st mortgage payment goes to HELOC and unsecured debt for 3 years and they get wiped out after that. In my case, if I keep the house and the 1st mortgage, there will be nothing left for HELOC and unsecured. I can't complain if I can get that but in this real estate crisis, it would be far better for me to just surrender the house and avoid the 1st mortgage all together. I think my house is worth something like 350k realistically and who knows how far it will go down further. So, how do I surrender the house in chapter 13? How will it affect the chapter 13 payment? I know that in chapter 7, "debt forgiveness" tax is not an issue. Is it treated any differently in chapter 13?

3. I think the general advise is to stop paying all creditors 3 months prior to the filing date. In my case, it's 3k/month surplus every month in my case. What do I do with all that money? I hear I need to spend on anything I can think of, like dental work, new furniture, auto repair, or even family trip. Well, I have two concerns. First of all, some of these expenditures might be construed as abuse and jeopardize my case. Secondly, I really can't think of anything to spend that extra money on. There's no way I can buy 3k worth of stuff every month for 3 months and, I suppose, also for the entire duration of the bankruptcy proceeding. What happens if I just keep the money in the checking account in chapter 13? Will they be automatically distributed to creditors by trustee?

4. I hear, due to soaring foreclosure, it can take a year or more until you actually hear from the bank to vacate the house in a bankruptcy where you surrender the house. What happens between the time you get discharge and the bank actually takes possession of the property? Am I accruing new debt? I am, in reality, renting the house (since I no longer own it) from the bank without paying rent. Can the bank come after me for it later on? Is it better to just walk away right after the discharge?

Thanks!

[treehugger1]

Well, you are in the situation I was in except I don't have a house; high income wage earner with high unsecured debt.

Have you gone to the US Trustees' web-site and worked through the means test? I think others have posted sites that have a means-test calculator. This is well worth your time so you are aware of the calculations before seeking an initial consultation with an attorney.

More and more debtors appear to be seeking pre-comments from websites such as this and gaining knowledge prior (or ancillary) to the advice of a BK attorney. Good for you! Welcome aboard.

In terms of not paying your credit cards/unsecured debt, once you take that step, it is hard to turn back. Generally speaking you will only get nasty phone calls and pleadings by creditors during the first 90 days. If creditors are local and have easy access to the courts, then you might expect rough waters earlier. But still, given you are in So. California, I would guess the civil court dockets are quite full and actions against you can be months away. Hard to know.

I don't know what could happen if you were to "walk away" after a discharge, but it might be possible that the cost of foreclosure creates a new unsecured debt after discharge. This can't be good. Other folks can weigh in here.

What to do with $2000 - $3000K per month? Well, don't pay any creditors or "insiders." You might keep it out of your bank account. What exemptions does CA allow for cash on hand? In Oregon the state exemptions exceed the federal exemptions in some areas. As an example, if I had $7500 on deposit in exempt finds, then these are supposedly exempt in BK. I say supposedly because I have not tested this! "Cash" can probably be a weird thing. The question of, "where did it go?" could come up. Go to a "cash and carry" budget. The nice thing about this is that it truly lets you know what life might be like without unsecured debt. In addition, it begins to dawn on you how much extra cash is being lost each month due to items/services you can probably do without.

Above all, in your case, seek some initial consultations with BK attorneys.

And, as always, post questions and/or concerns on this site. Cheers!