CONSIDERING BK EVEN THOUGH I'M NOT BEHIND ON PAYMENTS

[Anonymous]

My facts: I have  an interest only Mortgage on the first and Heloc, the 1st is a fixed rate for 5 years which i'm 2 years into, will reset in 3 years, interst only on both for 10 years, the house has devalued/negative equity by 130k, I've started a "debt solver" plan through consumer credit counseling - making reduced interest payments over 5 years for 50k credit card debt, 1 car payment and the usual monthly expenses for 2 people. I have been trying to request a Mortgage Modification (for fixed terms and lower rate) with the 1st since February 09 and have been denied once because they felt that we could make the payment (because we have been) and I've been going back and forth with them since with no avail. We have been making all of our payments to all of our creditors on time - no missed payments. We only have a positive cashflow of about $100 a month and have been begging, borrowing and everything under the sun to stay current. We LOVE our house and are considering BK - probably Ch13 - to try and resolve the high/interest only/negative equity mortgage and potentially lessen the monthly payment on unsecured credit. We have just as of today not made the 1st morgage payment - we are not 30 days late but are not paying quite yet until we talk to a BK lawyer. A couple of questions: (1) is it possible that we would not qualify for a BK because we ARE making all of our payments? or will they take into consideration that if one major thing happened, we would be up the creek?  (2) I know it's not a given, but is it likely that our mortgage lender would negotiate terms to keep the house under BK?, (3) what about the Heloc? I've read that could be discharged as unsecured debt if the home value only covers the 1st.  Sorry for the long email - appreciate and insight on this process.

[Anonymous]

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@Anonymous wrote:

(1) is it possible that we would not qualify for a BK because we ARE making all of our payments? or will they take into consideration that if one major thing happened, we would be up the creek?  (

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I only quoted your first question because I don't know the answer to the 2nd.  I have just met with attorney to move forward with our BK. We just cannot play the game anymore. We also have about $100 every pay check to live off of.  I am reading a couple of books and one is written by a lawyer.  Just last night read "I wish some of my clients would have come to me before it got really bad".  I have never missed a payment to anyone in 20 years. My dh and I are also living on the edge... Our lawyer didn't even blink when I told him we were not behind on anything, in fact, he said after discharge and the rebuild process that we'd be ones to bounce back quicker because of the many years of good paying history. 

Message Edited by Cheezy on 08-20-2009 09:36 AM

[Anonymous]

Intestesting thought about Ch7 vs Ch13 - I actually re-did my expenses yesterday and included many, many things that I hadn't included on my original $100 surplus a month. I'm now generally negative over $1300 per month based on things like allowance for clothing (which is still very conservative), car registrations, car maintence, etc....so, maybe Ch7 would fit. Our main concern was in regards to keeping the house so thought there was something there about Ch13 protecting it but since we are techically not late on our payments there is no foreclosure worry to rescue me from.

In addition, I called my chosen law firm (I have an priliminary consultation next week to review my facts) and the gal there confirmed that (at least with their firm) they do NOT get involved with negotiating terms on the 1st mortgage i.e. modification of terms. But, if the house has devalued to an extent that it does not cover the 2nd then they can do a "cramdown" of the 2nd and potentially eliminate it as unsecured debt. That, given with an elimination or reduction of my other unsecured debt would probably free up enough $ to make my 1st mortgage payments with a little more breathing room after monthly expenses. I guess I would then still persue on my own a modification of terms on the 1st since they are not fixed and the rate is slightly high 6.5.

Thanks for the feedback!

[Anonymous]

I edited and removed my mention of Ch7 because I thought you needed to protect your house, but it sounds like it might be an option. Since I don't own I don't know that much about that area, but anyway, good luck to you!!