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Surrendering home


imbarbra6
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I am considering filing for Chapter 7 BK. My husband and I are going to walk away from our mortgage because we are severely upside down and continuing on with it doesn't make sense at our age (51) We stopped making our payment April 1, 2009 which was $2730. We have about $30,000 worth of CC debt and we live in California. We plan on surrendering the house back to the mortgage company but since we are still legally obligated to pay it and will be until forclosure is complete, does anyone know if we can use the mortgage payment in the means test to help us qualify for Chapter 7?

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Your debt obligations go towards the test regardless if you have stopped paying on them or not.

Been there. Done that. Got the T-shirt.

But make sure you get a bankruptcy lawyer that will stick with your case post discharge. Many mortgage lenders are failing to take the deed back into their name timely. This means YOU can be held liable as the owner of record for things like building code violations or injuries on the property.

Also be aware you can stay in the house until the foreclosure is finished; essentially rent-free. This is will help you pile up cash to pay of other living arrangements and off-set the problem of being the owner of record. If you simply abandon the place after the discharge you are missing out on a big opportunity to save money and keep yourself out of bigger problems.

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Thank you. What if the lender fles the Notice of Default before we file for Chapter 7? What I mean is once the lender gets the ball rolling can they actually foreclose before the BK is done? I understand that once the BK is filed the lender has to do everything threw the courts but what happens? We dont want the foreclosure process to finish before the bankruptcy is discharged. Also another question.. Do judges or trustees account for the fact that you're going to be giving up your home thus giving you more disposal income to pay back your other unsecured debt once the house has been foreclosed. Gosh I hope not but I can't help but to wonder.

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Because I am thinking of the what if's - sorry but I can't help it. What if the Trustee or judge says without the mortgage payment we have to much disposable income and converts our unsecured debt to a chapter 13. Anyone know if this happens? If so, then what's the point of being allowed to use your mortgage payment when your going to surrender the house anyway?

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It doesn't work like that. The numbers are based on what your finances look like for the 60-day period before you file...not afterwards. The whole point is a fresh start, so they are not going to look at what your life will be like after a discharge.

Now as to the foreclosure question. When you file bankruptcy it puts a complete and total stop on any foreclosure process the bank may have started. They have to ask permission from the court before they can resume any foreclosure process. Only if the judge grants their request can they go forward.

In a simple chapter 7 bankruptcy you are done and discharged usually within about 90 days. So you should find out what your State's foreclosure laws require for redemption periods, etc. Foreclosure timelines can vary from 30 days to as much as a year depending on where you live. And like you said, even after the discharge, the lender still has to foreclose to get the deed out of your name; and the house is still yours until the foreclosure sale happens. You may have an entire year of no house payments before you have to move out.

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I just had a frightening thought! We are upside down in our mortgage by about $174,000. We know that usually in California lenders do non-judicial foreclosures and rarely do judicial foreclosures. If we tried filing for Chapter 7 and for some reason the judge or trustee didn't allow it what would happen since we are looking for BK protection against a judicial foreclosure? I don't see how a trustee could even suggest coverting it to a chapter 13 since (correct me if I'm wrong) the chapter 13 plan is only for 3 or 5 years correct? Paying back $174,000 is not possible in 5 years. Would it leave us open for the judicial foreclosure? Gosh this worries me now. My appointment with the attorney is not until next friday. At that time he wants half $1450 down. I'm so worried. Can anyone give me advice or something?

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You worry too much.

No lender can do a non-judicial foreclosure once a bankruptcy petition is filed. PERIOD. It doesn't matter how upside down you are. If you are that far upside down it would also preclude a chapter 13 because you have to be able to pay back at least a little to unsecured lenders for a chapter 13. If all your disposable income would go only to partially paying secured lenders then you wouldn't get a confirmable plan in chapter 13 anyways.

The one thing that is hardest about bankruptcy and surrendering property is that you have to let go of the emotional attachment. It takes some effort, I know...because I have been there. But until you let go and let the anxiety go, you will continue to get all wrapped up in this house which you already intend to walk away from.

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So if I understand you correctly, you're saying since we are so upside down, paying back the anything in regards to the house, can not be funded in a chapter 13 BK. It's just not possible since the longest we can fund a 13 is five years. I was wondering if it's possible to be denied a chapter 7 and a 13? If we couldn't pass the means test but not able to fund a chapter 13. Has this ever happened?

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Has this ever happened?

Not that I am aware of. If you filed chapter 13 and could not muster the funds to pay a confirmable plan, you would end up converting to 7. you'd just be wasting what funds you do have on unnecessary legal fees.

When you started this thread you stated you intended to give up the house. If that has not changed, then a chapter 7 is your course. Just make sure you are paid current on any other secured property you intend to keep (such as cars).

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It doesn't work like that. The numbers are based on what your finances look like for the 60-day period before you file...not afterwards. The whole point is a fresh start, so they are not going to look at what your life will be like after a discharge.

Now as to the foreclosure question. When you file bankruptcy it puts a complete and total stop on any foreclosure process the bank may have started. They have to ask permission from the court before they can resume any foreclosure process. Only if the judge grants their request can they go forward.

In a simple chapter 7 bankruptcy you are done and discharged usually within about 90 days. So you should find out what your State's foreclosure laws require for redemption periods, etc. Foreclosure timelines can vary from 30 days to as much as a year depending on where you live. And like you said, even after the discharge, the lender still has to foreclose to get the deed out of your name; and the house is still yours until the foreclosure sale happens. You may have an entire year of no house payments before you have to move out.

It is my understanding that the means test is looking at the 6months prior as you said but that schedules I&J are the actual income and expenses after discharge.. looking forward

This is why ( I have read) some may pass the means but can still end up with too much DI

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Read this thread...the question has been asked and answered about how the means test handles secured debts that are intended to be surrendered. In the majority of courts, they are including them in the means test calculation even though the monthly payment will terminate. Congress wanted a methodical, mechanical, inflexible means test calculation and courts have given them one, even if it doesn't make much logical sense.

http://www.debt-consolidation-credit-repair-service.com/forums/showthread.php?t=295001

Regarding I&J, they are not the means test calculation. Form 22A is the means test calculation. It is a very mechanical bright line type of test. If you are below the applicable state median for income, then you stop there and presumption of abuse does not arise and you pass through the gate. If you are above the applicable state median, then you continue on and you deduct certain expenses including a home you intend to surrender (this is the majority rule). Remember, at the time of filing, even if you intend to surrender the property, the 60 mortgage payments going forward are still "contractually due". Look at Form 22A, lines 42 & 43.

http://www.uscourts.gov/bkforms/bankruptcy_forms.html#official

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I don't see how a trustee could even suggest coverting it to a chapter 13 since (correct me if I'm wrong) the chapter 13 plan is only for 3 or 5 years correct? Paying back $174,000 is not possible in 5 years.
Another area of confusion. You need to cure arrearage plus make your regular mortgage payments over the life of the Chapter 13 plan period. You are not in arrears for $174,000 even though you are upside down that amount. Whatever amounts you are delinquent on your mortgage (likely to be a few thousand, if any) is the additional amount to be paid back over the plan period.
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