13 vs. Settlement - newbie here

[nipomo]

Hi all:

Been lurking for a bit, but need to jump in to get some advice.

We have nearly $80k in unsecured debt, own a home with a 1st & 2nd, and the house is (surprise) upside down on equity. Our monthly expenses are higher than our income because of our debt and we (duh) need to take action.

Our first move was to enter into a loan modification program - we're several months into that process. No results yet. For better or worse (probably the latter), and on the "unofficial" advice of those we're working with, we stopped making our 1st & 2nd payments. I love how the folks say 'we never advise you to stop paying,' then follow it up with how the lenders "won't help you fix what ain't broken."

Anyway, we bought into that and hope it works out. We simply don't know.

So, the next word of advice we're getting is to do debt settlement. We are current on all credit card payments, but really only because we're not making our home payments. We were on the verge of enrolling in a settlement program (we haven't, just in case anyone is skeptical), but are scared to death about stopping our cc payments, paying into a trust fund where we don't know if the money will be used for good-faith negotiation, and even more scared that if we settle, will the money we pay actually go towards debt?

Forums like this one and others pretty much are in unison that most settlement arrangements are scams. To that end, we haven't yet come across any business that seems to be reputable.

Now we're thinking about filing 13 instead. Our primary focus is to keep our home and cars, and we want to be as responsible as possible for paying back our debts in some manner. That said, 7 doesn't look unattractive but we don't want to lose the house.

We're getting ready to start researching BK attys in the area immediately, but I'd love to know what some of you think. Thanks in advance.

[bingo]

You're far better off in some Chapter of bk. Settlement companies are a scam .
The big question is, the home worth saving. If you're upside down by a large amount, consider a Chapter 7 and surrender the home .

[nipomo]

Thanks for the advice...we don't want to lose our home because...it's home.

[bingo]

BK is about a fresh start. WHy would you want to emerge from bk with a large negative net worth?
There'll be other homes.

[nipomo]

Bingo, I really appreciate the favor of your replies, but our primary goal is to keep our home. We need to be able to accomplish that in this process.

We've been pitched heavily on debt settlement because of the potential to keep our home but are trying to block that out because of too many unknowns about where our money will go. Because of that, we're considering 13.

We are made to believe by our loan mod folks (and maybe we should believe 'em) that we're under pressure to make a decision right now on our debt because we're a few months behind on mortgage payments and the loan mod people are saying that the lender on our 1st wants to see some sort of debt settlement addressed. It bears noting that the same person who pitched me the loan mod is also pitching me the settlement process, though different companies are involved.

We DO feel a lot of pressure and believe, after doing some research this week, that our best route is to being calling some local BK attorneys. Would anyone concur?

Thanks in advance for the advice, everyone.

[Denita]

You do need to check out local BK attorney's.

If you file a Ch 7 you must be current in your payments on the date of filing in order to save your house.

If you can not get current, then you ought to consider a Ch 13 where you can catch up your arreages in the BK.

It is tough to get you any real answers because we do not have enough information (like your location and your allowable exemptions). The attorney will be able to answer these for you.

But I have a question, so far the lenders have been very, very reluctant to do modifications anyway - and most will not consider a modification if you have a BK on your record. The order to do this would be to get your loan modified first (the first mtg) and then strip any jr liens in your BK. The jr liens have to be wholly unsecured in order to get stripped and you have to complete the Ch 13. You can not strip any liens/mtgs in a Ch 7 - its all or none. Why has the loan modification person not informed you of this very, very basic concept? :shock:

[1time2many]

Nipomo,

Go Here and do alot of reading, and for Gods sake stay away from Debt and home modification companys.

WWW.loansafe.org

[nipomo]

Thanks again for the info. I didn't (yet) know we needed to be current to do 7. One question - do we need to be current on our second? I can probably get current on the first, but not both.

Also, the reason the loan mod person hasn't talked to us about 7/13 is that I was trying (probably out of fear) to avoid 7/13. As week ago at this time, I still didn't have my head around the notion of being a 7 or 13.

[Denita]

You probably don't have to be current on the second mtg.

However, it is one more reason you might consider a 13 rather than a 7.
Did you know you can strip a second mtg in a 13, but not in a Ch 7?

There are some rules to do it - like the value of the house must be less than the value of the first mtg and you have to actually complete the 13 in order to get the lien stripped (2nd mtg) off your property.

Check with a couple of BK attorney's on a free consult. Make sure you ask these questions regarding the stripping and how much direct experience the attorney has with doing the lien strip.

[willingtocope]

Talk to a couple of BK lawyers...see what your options actually are for your state. You don't have to sign up...just get info. Most will give you a free consultation.

And, realize that a BK13 is almost exactly like working with a debt fixer as far as the overall impact on your credit rating goes....except...with a BK13, you have the courts making your creditors play nice and ALL debts are handled, not just the ones the debt fixer has contracts with...

[nipomo]

Again, many thanks. I made an appt with an atty for later this week. If we proceed, that'll probably be the end of the loan mod process. We're right at the 90-day-past mark for our 1st and 2nd, and probably can't afford/don't want to let that process continue.

[nipomo]

Not sure what to do here - we're not meeting with a BK atty for another 1.5 weeks, yet we're now past the 90-day mark on home loans. While our lender in first position has been quiet, the lender in 2nd position is telling our loan mod people they'll do a delinquency judgement against us if they have to assign our 2nd to collections. I'm new to that term.

They want 2 months' worth of arrears paid to them in order to review a loan mod (only a review)...I'm stuck between holding out until after the BK meeting, or meeting them halfway with a one-month's worth payment to hopefully keep things on hold for a bit. Even if we did a loan mod, we still could get right side up because of cc bills.

Bottom line is we want to keep our home, yet we were talked into (and we bought into) a loan mod when we could have made those payments and missed the cc payments instead. In the end, we're probably better candidates for bk.

Any thoughts?

[Denita]

"Deliquency judgment" = no such thing. There is a judgment, but of course they have to sue for it. It's not automatic. If they are the OC, it will be relatively easy to get. BUT, you have your meeting soon with the attorney.

If you are filing a Ch 13 AND your 2nd is 'unsecured' because the first mortgage exceeds the value of the property - I would not pay a dime to these people. Strip the 2nd in the Ch 13.

When you get to the spot you are in right now - you will hear all sorts of weird things from collectors - including loss mitigation people.

The most common thing I heard was "Our debt is not dischargeable!" I heard that from nearly all the creditors! Just know they will say anything to get you to send money. I bet if you send one month to the second mtg it would not even be applied to your account! They put it in an account called "SUSPENSE ACCOUNT" which means they have the money but have not applied it to your arreage. Who wants that??? Yet they do it all the time to people. BTDT.

1.5 weeks is not so long to wait to see a good BK attorney. He can file an emergency petition if necessary. But the most important thing is getting all of your paperwork together so he can truly guide you in this process.

[nipomo]

Thanks so much - and this is why we're waiting 1/5 wks. We're trying to shop around, but so far have only made one appt with a bk atty that wants a ton of paperwork, and probably rightly so. Another bk atty I initially made an appt asked for nothing, and I thought that wasn't quite right.

If the comps I'm seeing are right, the first morgage greatly exeeds the value of the property.

The loan mod people will be calling soon, asking me what I want to do about this. I haven't told them, and probably don't plan to, that we're sitting down with bk attys and may not say anything except "Stop the process" if we go the 13 route.

[Denita]

See if you can't find a couple of BK attorney's to interview...all of them are busy now :wink:

But it is important that you treat this like an interview process - where you are the employer - not the employee.

You want to know if the attorney is going to attend the 341 and not hand it off to a jr associate. You also want to know if BK is the only thing he does - as most good BK attorneys ONLY practice bankruptcy. It is a paperwork intensive field with lots of fairly quick deadlines - totally different from a 'normal' type practice.

Call the State Bar Assoc to see if they have any recommendations. Google your area too. Check the reputation of the attorney's...

[nipomo]

The pros: He does everything himself - no paralegals. He's in good stead with the Bar.
Possible con: BK isn't all he does, but it's not one of a dozen things, either.

[Denita]

Maybe someone else will contribute to this thead too....

but I found that a good attorney with a good paralegal is the best way. Now that is not to say anything about your possible attorney selection - because its up to you. But it is something to consider.

[nipomo]

Thanks very much for the favor of your replies and advice. The only drawback I can see, that the atty mentioned, was that becuase he does everything himself, things may take a bit longer.

The loan mod folks just left me a msg asking what I want to do about the second, even mentioning bk - I guess I'll try holding them off until we can get inf ront of the bk atty, because I'm pretty sure the loan mod folks will want to sell me their bk services...pass!

[nipomo]

Our first mortgage lender (based in another state) sent someone out to hang something on our door, which amounted to a "Call us - we're expecting your call today" notice, but it looked looked like it was more of a mortgage/foreclosure help leaflet.

I hate to say it, but these things freak me out and make us want to give them a payment as if it'll hold them off (though if we make that, we're then short on cc payment $, plus as mentioned, it may not get applied to the account).

I appreciate the advice, though, that we're not that far away from our first bk atty mtg, plus we'll probably make 1-2 more appts with other attys this week. It just so happens that we're about 100 days past due, so we feel some pressure. We probably needed to get to the bk route, but in hindsight, we probably shouldn't have entered the loan mod process and bought into the "if it's not broken, why would the banks fix it" line and missed payments.

[Denita]

Since you are so close now to meeting with an attorney, just keep your funds in your pocket so you have enough to retain the attorney if he is the right one for you.

As to not paying credit cards - most attorney's will tell you not to pay the unsecured debt anyway unless you have had recent transactions on the cards. There are certain things you want to make sure of in your filing - do not have any charges on your cards within 90 days and no cash advances or balance transfers in at least 70 days. If you have time, read the sticky's in the BK section and also visit a site called www.bkforum.com to get an idea of some pre-BK planning.

Of course, you can come here anytime and ask all the questions you need to - we are here to help you get over this rough spot. :)

[nipomo]

...and it is a rough spot. I can't say we haven't used our cc's in the last 90 days, but the activity has been at a near stand-still of late.

Thanks so much for your advice.

I'm also stressing about "life after" - the prospect of being on a really tight budget if we go 13 (not that we had an extravagant lifestyle), trying to keep our kids in their private school (it's a cost savings vs. public school because of daycare costs - really), the prospect of this black mark being on us until we're nearly 50, the bk coming off in a decade, right when we need to send the kids to college - and even stuff we don't have a clue about yet.

[nipomo]

Need some help on this one:

We got a nice-sized tax refund that was wired to our bank and I don't want to leave sitting in my checking account - we WANT to use it for helping pay for private school tuition for our kids this fall, as we always do.

However, since we don't know what's going to happen in the bk proceedings, we may need some of it for emergency funds, may need some of it for attorney's fees, and who knows - we're way behind on our mortgage payments and may need it to help get current if we do a 7 (you have to be current for that, right?). Plus, since we did divulge a lot of bank account and bills info to a debt settlement company without signing, we do have some fears about identity theft.

Is going and getting most of it in cash, and sitting on it, going to raise major flags down the road? I'd like to have ultimate control over that money for as long as possible rather than it possiblly dwindle down in the checking account or get taken by an ID thief.

Thoughts? Again, THANK YOU SO MUCH for all of your replies.

[Denita]

First thing I would do is close that bank account since you gave the account info to the debt settlement company. Right now, do not trust that your funds are safe if others have the account info. I would even change banks just to be extra safe. Make sure you have your funds in a bank that has NO debt tied to it (no credit card, or installment type debt).

You are allowed to spend money on your attorney before filing, also living expenses. I am not sure about the private school issue, but since the kids have been in private school - it may be defensable.

If you choose to operate with cash only, make sure you have receipts. You are allowed to "spend down" your tax refund before you file. There are certain restrictions, like do not repay insiders (usually family members) because the look back period is one year for insiders rather than 90 days.

The critical thing is a Ch 7 and Ch 13 really have different strategies. For a 7 you want to be current when you file, for a 13, it is not necessary and the arreage can be handled in your Ch 13 payments.

[nipomo]

Denita: Many thanks again for all your advice. My BP is high enough as it is, and you're keeping it as low as it can be right now. :-)

We just switched banks a couple months ago and it was a headache, so we'll go in tomorrow, close that account and open another, plus we'll have them give us as much security as possible. We have nothing but a bank account with them.

It's tempting to just use it for the private school as we always do, but if a judge says no to private school, we're out at least some chunck of it.

I am curious as to how much, on average, people have as discretionary income each month in a 13. Like many, we're pretty nervous about being on an incredibly tight budget for up to five years...it's going to be hard to stave off the pressure to join family on vacations for that long - not that we take them very often and when we do, they're not exotic at all. I wonder if people have room to save for a trip say once a year that would cost <$2k.

[Denita]

I filed a 7 and not a 13 so I have no direct experience. But there is a site that discusses the Ch 13 budget strategies at length, www.bkforum.com

If you have a good Ch 13 attorney that knows how the Ch 13 Trustees work in your district, it is even possible to have small vacations and savings in a Ch 13. But the filing and budget are critical - that is where the experienced Ch 13 attorney come into play. Wish I had a better answer - but check out that site and look at the Ch 13 Forum for some details.

[BrokeNFroze]

I would dump the house. If you are upside down in it why bother? You'll still be broke after the BK. If you can do a 7 then that has some major advantages and if you are starting clean then START CLEAN!
I am thinking of a 7 or 13 and keeping my house. In my case there is a significant differnce, though. I am not upside down and replacing my home would cost me more than keeping the one I have.

[nipomo]

Re the above post: We're keeping the house. It's our home. No more about that. :-)

Update - we met with a BK atty who is suggesting we do a 13 because we can strip the second. He's going to check on the possibility of a three-year rather than a five-year (his idea, not ours, but hey - if it's possible...). We're busy pulling all sorts of paperwork and going through our assets.

In the meantime, we got a loan mod offer from our first lender that we're inclined to take, seeing as how it gets us out of our interest-only arrangement into a principal plus interest, our house payment stays reasonable and at a lower interest rate than before. The arrears are folded back into the loan, so I'm calling today to make sure by signing this, we'll be current and to get that in writing.

(Not so) funny thing is, we don't think our loan mod people had anything to do with this offer.

We were told by our loan mod folks that our first lender wanted us to commit to a debt settlement program as part of any loan mod, and this loan mod offer says nothing about that, which tells me this is the lender offering a loan mod on their own because it's a potential win-win - we stay in the house and get a lowered mortgage payment, and for the lender, if we paid all the way to maturity date, they'd make more money and it's one less home they have to foreclose on.

It bears noting that the loan mod people just so happen to be the "processing center" for the debt settlement - how convenient! Wonder who's interest they have in mind here!

Will keep you all posted and thanks again for all the advice.

[parsoc]

Nipomo,
We've been in a 13 for a year now and are struggling with budget issues all the time...or rather, struggling because we don't HAVE a budget! :roll:that will have to change soon...I printed out the categories on the bank statements and am appalled at how much we spend on food.
You're way ahead of the game if you can squeeze out some savings each month or each payday and put aside....we just had a $1000 repair bill on a water line...luckily he's an acquaintenace and is working with us on geting it paid, but it would have been impossible with anyone else.
I'm applying for a loan mod too so am interested in how you fare in that. We went with Debt Settlement but it was really a waste of money, am sorry we didn't do BK at the beginning.
Good luck to you, it's a journey we're all on! Let us know how it goes.
Ps Do you mind me asking which CA district you're in?

[nipomo]

Thanks for the budgeting advice, which seems to be the most daunting part of all of this. We will endeavor to have an emergency fund from the outset and will probably need to dust off Quicken to really look at the short- and long-term budgeting issues.

The loan mod is done pending our signatures and the second will be stripped in the 13.

I hear you about thinking you should have done a 13 from the outset. Part of my issue was stubbornness - I wouldn't hear of a bk when we met with the loan mod people...was too scared of the stigma I had built up about bk.

So, the 4-figure sum we paid to the loan mod people? It got us a little relief from dealing with our lenders and not having to submit the ppw directly to the lenders...not really a return on investment.

To me, the real mistake would have been to not heave learned from that mistake, and we just about made that mistake by nearly signing up for debt settlement. When we decided not to trust anyone on the debt settlement end of things, bk sort of crystalized as the only alternative. I talked to a dear friend who is a lawyer (not bk), who really put my mind at ease. I also conferred with one person who had done bk (albeit a 7), and his words meant a lot.

We're not out of the woods yet - we're getting ready to submit all our ppw to the lawyer, do the counseling, etc. So, we're probably trading one set of "woods" for another!