Just looking for some thoughts before I meet with an attorney

[ej822]

Just to be clear, we have an appt scheduled with one attorney on Friday and a second on Tuesday. So, we're getting legal advice soon... just I'm up nights worrying about this and would like to get some sleep before now and then instead of wondering what our options are.

My husband's work has been slow and we're not able to find something that pays more in the area. I work at home part time and care for our 2yo and 4mo kids, so increasing my income isn't all that likely. We've been basically living off credit cards for food, etc. (because the payments have snowballed) for a few months now and it's come to the point of BK.

We have 2 homes (we each had one when we married, now rent one because the value had dropped when we married and we could not sell it and pay off the mortgage).

Our primary house has first mortgage of $203,000 and worth about $203,000 give or take a little now that values have dropped, but also has a HELOC of $25,000 (full line used) against it.

Rental house has first mortgage (VA Loan) $116,500 and is worth about $60,000 to 70,000 ($46,500 to $56,500 under water - ouch).

We have approx $39,000 in credit cards, $3000 in medical bills.

We have a leased truck (lease is up March 2011) and 3 older vehicles worth $2500, $1000, $800 roughly.

We only take home about $3000-3500 per month, so we could make the house payment here, but not with the $350 HELOC. I believe we're well below the median income.

I don't really understand Chap 13, 7, etc. If I had my way, we'd get the Heloc and credit cards discharged, keep our house, nix the rental, and get the payments reduced on the truck lease (I know, I know, dreaming there, right? LOL). Is any of this possible?

[LadyInTheRed]

I don't really understand Chap 13, 7, etc. If I had my way, we'd get the Heloc and credit cards discharged, keep our house, nix the rental, and get the payments reduced on the truck lease (I know, I know, dreaming there, right? LOL). Is any of this possible?

Assuming you can keep up the payments on your first mortgage, you should be able to do most of that.

In a chapter 7, the Heloc would be discharged so you wouldn't have personal liability to pay it, but the lien would remain and would have to be paid when the house is sold. The lender could foreclose, but probably won't until your equity in the house increases enough to make it worth their while. An eventual foreclosure is the risk you take by filing a Chap 7 instead of a 13. But, a chapter 7 is over in a few months while a 13 lasts for years.

In a 13, if you can prove the house is worth the same or less than the balance on the first mortgage, the Heloc would be converted to unsecured debt and the lien would be removed after your Chapter 13 is discharged after you successfully make 3 to 5 years of plan payments. If your gross income is over median for a house hold your size, the plan will be 5 years. If you are under median, it will be 3 minimum, but no more than 5. It sounds like the value of your house may be close to the balance on the 1st, so you need to get a good appraisal.

I don't think you can reduce the payments on the truck lease, but you do need to have a reliable vehicle. Are you able to pay the first mortgage, a car payment and your living expenses? If so, ask the attorneys about giving up the leased truck and financing a newer (or even brand new) modest vehicle. Or, maybe you can buy out your truck lease. It sounds like you are still current on payments, so financing a vehicle will be easier now than after missed payments start showing up on your credit report. In a Chap 13, the car payment will reduce the total amount going to unsecured creditors.

Read the stickies here to find more information on the differences between Chap 7 and Chap 13.