Anyone done a personal Chapter 11 BK?

[Scout76]

This is my first post here but I have been a reader for a while. This is really a great forum and about the only place on the Internet (or anywhere else) to get actual facts about what is going on with loan mods.

Not sure if this is the best place for my question, but this is the forum I read the most and I think you will see it is related to the general topic (and yes, I searched first and didn't see another thread on this).

My question is if anyone here has done a personal chapter 11 bankruptcy and what that experience has been like. I think it may be about my only option, but I also see that it is expensive and time-consuming and may not even help that much.

I am in the process of trying to get a loan mod on my first and second mortgages (aren't we all). I'm concerned, though, that even if successful - and that obviously isn't a given - that it won't be enough help.

My situation is this:

I live in Northern California and have a 1st with Wamu/Chase which is a neg am option arm with a balance of $949,000. I also have a second/HELOC with Indymac with a balance of $149,000. Current value is about $750,000.

Before anyone thinks I'm a rich weasel, my house is 30 years old, 3 bedrooms, 2,400 square feet. Not a mansion. But it's our home and we want to keep it. If I had any money to buy anything else, I'd walk away from it, but I don't, so we are fighting to keep it. (And I have been unemployed for an extended period - working now - had medical expenses, etc. I can relate to many of the stories I've read here. I wish I were a rich weasel.)

I had heard that I could get the second wiped out in Chapter 13 and started to think we had hope. Get a loan mod on the first, then knock out the second in chapter 13 (we also have credit card debts). Then I did some research and found that the maximum secured debt for a 13 is $1,010,650 and I am about $90,000 above that. So I looked into chapter 11, which seems expensive and scary. I think I'd have to handle it on my own due to the high attorney's fees, but besides the fact that I wouldn't know what I was doing, I read the lenders can bill you for some of their costs, which I'm sure they won't hesitate to do, and they can make life very difficult for you in Chap 11.

So I'm back to the drawing board. Just curious as to whether anyone has any similar experiences or just any suggestions. There's got to be something I can do so we can keep our house, and that status quo won't work.

Sorry to ramble a little, but this is a pretty long story and I tried to make it relatively short. Thanks

[davephx]

Check into if your 2nd is worthless since underwater I believe it will be counted as an unsecured debt in Chap 13.

[MyHAMP]

Originally Posted by davephx

Check into if your 2nd is worthless since underwater I believe it will be counted as an unsecured debt in Chap 13.

Yep, if you are already under water on your first mortgage, the second can be "stripped". However, the balance of set mortgage doesn't count towards your unsecured debt-limit in a CH13 which is a good thing (in other words, on the schedules it is still considered "secured")!

If we get a successfull HAMP and the second doesn't accept a settlement, we will use that money to pay for BK expenses and go the CH13 stripping-way..

[Scout76]

I talked to a BK attorney about this. He said that going into the chap 13, both the first and second mortgages are counted as secured debt for purposes of qualifying. Once you qualify then you can have the 2nd deemed to be unsecured and stripped. So my problem is that I can't get to that point.

[MyHAMP]

Originally Posted by Scout76

I talked to a BK attorney about this. He said that going into the chap 13, both the first and second mortgages are counted as secured debt for purposes of qualifying. Once you qualify then you can have the 2nd deemed to be unsecured and stripped. So my problem is that I can't get to that point.

Hmm, I was told it was different.

That user said that the second mortgage was contigent and unliquidated because it required a hearing to determine that value of the claim.

[Scout76]

The attorney I spoke with was very sure about this (and I pressed him because it is so important to me).

He said it must be classified as a secured debt at the time of filing, because it is a secured debt even if the security is worthless due to a decline in value. It is later in the process where you can have it reclassified as unsecured.

I would obviously love to be wrong about this. If someone here is a bankruptcy lawyer who can fit me in under the chapter 13 limits, you've just got a new client.

[MyHAMP]

Originally Posted by Scout76

The attorney I spoke with was very sure about this (and I pressed him because it is so important to me).

He said it must be classified as a secured debt at the time of filing, because it is a secured debt even if the security is worthless due to a decline in value. It is later in the process where you can have it reclassified as unsecured.

I would obviously love to be wrong about this. If someone here is a bankruptcy lawyer who can fit me in under the chapter 13 limits, you've just got a new client.

Yes, that's very important in our case as well. Otherwise, we would have to file CH7 and try a settlement after discharge. That might be the faster solution - but the outcome is uncertain..

[MyHAMP]

Originally Posted by Scout76

I talked to a BK attorney about this. He said that going into the chap 13, both the first and second mortgages are counted as secured debt for purposes of qualifying. Once you qualify then you can have the 2nd deemed to be unsecured and stripped. So my problem is that I can't get to that point.

STOP! Sorry, Scout76, I just read the post again and your attorney is 100% right!

I mis-read.

It's counted as "secured" first and then turned into "unsecured".
In our case, that is an advantage because the high balance of $150K would exceed our unsecured limit due to the other unsecured debt (CCs).

Sorry again for the confusion...

[Scout76]

No problem. And I could do chap 7, but that wouldn't help with my 2nd.

[MyHAMP]

Originally Posted by Scout76

No problem. And I could do chap 7, but that wouldn't help with my 2nd.

If CH13 simply isn't an option because of the numbers, I would certainly try CH7 (assuming your income is in the range to qualify for that).

As you know, CH13 is more expensive than CH7. You could get a discharge on your mortgages and offer the 2nd a settlement (5-10% of the balance). They might take it because you aren't liable for it any more and if your house is under water, foreclosure won't bring them money, either. That settlement might be as good as it gets - for them.

Of course, there is no guarantee they'll go for it - but if CH13 is NOT an option, would do you have to lose?

In addition - since it might take a while before the housing-market recovers - you could file CH13 once the value goes up again and there is a risk of foreclosure by the 2nd. Maybe your mortgage balances aren't over the limit for CH13 any more in a few years - when you're eligible for BK CH13 again.

[Scout76]

Originally Posted by MyHAMP

If CH13 simply isn't an option because of the numbers, I would certainly try CH7 (assuming your income is in the range to qualify for that).

As you know, CH13 is more expensive than CH7. You could get a discharge on your mortgages and offer the 2nd a settlement (5-10% of the balance). They might take it because you aren't liable for it any more and if your house is under water, foreclosure won't bring them money, either. That settlement might be as good as it gets - for them.

Of course, there is no guarantee they'll go for it - but if CH13 is NOT an option, would do you have to lose?

In addition - since it might take a while before the housing-market recovers - you could file CH13 once the value goes up again and there is a risk of foreclosure by the 2nd. Maybe your mortgage balances aren't over the limit for CH13 any more in a few years - when you're eligible for BK CH13 again.

Thanks for the feedback. I would definitely like to do a 7 as opposed to an 11.

I found a "means test" via nolo.com that says that I am not eligible for chap 7, but I don't know how accurate it is. There was also something on that page that said a judge could allow you to file chap 7 even if you fail the means test if you have "special circumstances" like a hardship. I would think that my sad story of how I got to this point, plus not being able to file chap 13 and not being able to afford chap 11 would be pretty compelling, but who knows.

You mentioned getting a "discharge" on my mortgages. I thought in chap 7, you either affirmed your debts and said you wanted to keep paying them or in the case of a mortgage you had to give up the property. Do you know if it is possible to affirm the 1st and "discharge" the second? That would seem to be the same effect as what would happen in chap 13, right?

[MyHAMP]

Originally Posted by Scout76

You mentioned getting a "discharge" on my mortgages. I thought in chap 7, you either affirmed your debts and said you wanted to keep paying them or in the case of a mortgage you had to give up the property. Do you know if it is possible to affirm the 1st and "discharge" the second? That would seem to be the same effect as what would happen in chap 13, right?

In CH7, your mortgages are discharged - however, they stay attached to your property. Example: You get your discharge but stop paying. They can foreclose BUT can't come after you for deficiencies if you owed more than they got from the foreclosure. The third option besides reaffirmation and surrendering is a "ride-through": You simply keep on making your regular mortgage-payments. Nobody can force you to reaffirm.

In CH13, you can "strip" an unsecured 2nd mortgage ("unsecured" means that you owe more on your first mortgage than what your property is worth). In that case, the 2nd is converted to an unsecured creditor and they would get the same partial payments as - let's say - a credit card. once you successfully completed CH13 (after 3 or 5 years), the second mortgage is completely erased and taken off your property (but again, ONLY if you complete your CH13 successfully. If it's converted to a CH7 at any time, the lien comes back).

Reaffirming is simply not necessary - at least not when you're current. If you don't reaffirm, you can always walk away from your house without being responsible for deficiencies. Reaffirmation is good for the lender - NOT for the borrower.

[scb2k]

MyHAMP would it be possible to file for CH7 BK and work out a settlement with the 2nd loan to pay off say 10% of the amount owed and settle at that?

[MyHAMP]

Originally Posted by scb2k

MyHAMP would it be possible to file for CH7 BK and work out a settlement with the 2nd loan to pay off say 10% of the amount owed and settle at that?

That's what many people do: Get a CH7 discharge for their PERSONAL liability for their mortgages and offer the second lien holder a settlement. 10% sounds about right. It always varies. The average range is from 5-15% of what you would normally owe.

But keep in mind that this only works if you already owe more on your FIRST mortgage than what your property is worth. Otherwise, the second lien would still have some value and they could still be tempted to foreclose on you - depending on the situation (i.e. how much equity there is).

I also want to repeat that there is NO GUARANTEE that they agree to a settlement. However - after your CH7 discharge and on a property that is under water - your chances aren't too bad.

[scb2k]

MyHAMP Well here is my situation..

I owe 406,676 on the 1st and 156,220 on the second HELOC.

total 562,896

comparable houses in my area have sold between the range of 436K - 450K

So based on my research, I would not qualified because the property sales in my area seem to be a bit over the 406K value of my first loan..