Walking away after CH7 Bankruptcy

[robijamie]

Hi,

Thank you in advance to any and all advice. This forum has been a blessing in a very stressful time in my life. Here's a little bit about us:

We owned a small business "sole proprietorship" and incurred debt that we could not pay after closing the doors in May 2008. We also had CC debt business related, and a small bit of medical debt. Since then, we have filed CH7 Bankruptcy on Dec 4, 2008. We initially started out thinking we would stay in the house (not reaffirm but at least ride through). We have our 1st mortgage with CW at 6.825% principle balance $276,000 and our second with WAMU at 4.25% (variable rate of prime plus 4%) at a balance of $33,600. We think the home value is close to or about $15,000 lower than what is owed.

My dh got a 20% pay reduction last month and it has forced us to really look at our financial picture again. As it stands, our payment is about 45% of our take home pay. It is too much. We are late 30 days starting tomorrow. On our bankruptcy papers, it states we are reaffirming our mortgage but we know that we still have the option to surrender. My question is this, with being late 30 days and in an active bankruptcy, does anyone have any idea how long we have to live here? We are in Idaho, which is a non-judicial state. Does being in bankruptcy make it longer, or shorter?

We are considering a loan modification, but only if we get our payment down less $800 per month which is probably unlikely. We aren't sure if our lender will consider this and think we are trying to make it all work out and prolong our time here.

Thanks!

[The Professor]

Your lender cannot do anything relative to proceeding forward with your case at this juncture because of Bankruptcy Code Section 362. Section 362(c) sets time limits on the stay. For example, the stay terminates when a discharge is granted or when a case is closed or dismissed. My sense is that your lender will probably do nothing until your discharge has been entered and the Chapter 7 trustee has abandoned the home. In terms of a timeframe, it is difficult to judge and varies. If your case appears to be of the "no asset" variety the discharge can happen quite quickly (Once the 60 day period after the first meeting of creditors hearing (Section 341) expires with no objections from creditors, you should get your discharge papers within weeks.).

NOTE: I'm concerned, as you should be, about your bankruptcy papers reflecting your reaffirmation of the mortgage debt. In your situation this is something I wouldn't think would be wise. You need to talk to your attorney about this. Please help me sleep at night by confirming you will do that.

According to the section provided in the "Foreclosure Laws" forum, the foreclosure process takes about 150 days to complete once initiated. It is initiated with the filing of a notice of default. My sense is it won't be started until after your discharge has been entered and the Chapter 7 trustee has closed the case, unless your lender wants to start earlier by obtaining relief from the automatic stay (Section 362).

Daniel

[robijamie]

The papers say we are reaffirming, but our attorney has told us that if Countrywide or WAMU send reaffirmations, we will not sign them. At that point, we would do a "ride through" if we intend to stay in the property. Right now, we are 37 days late.

Our attorney has said that if all goes as planned our case would be "discharged" in early march. But if there are any assets that need to be distributed, etc the case might not be closed for another 6 - 7 months. So, having said all that, what do you think now?

We are still working on a modification and crossing our fingers but also trying to stay realistic and "unattach" ourselves from the home if necessary.

THANK YOU!

[The Professor]

I wouldn't reaffirm. If WAMU wants to voluntarily accept lower payments and reduce the interest rate that is fine, but what you want is that and your "cake" too. In this case your "cake" is not being personally liable on the loan since you'll be discharged through the Chapter 7 filing.

Daniel