Question..Forclose or not? (credit cards, loans, debt, payment)

[MDtech123]

Hi all, A friend of mine brought up an interesting situation to me yesterday, "Bob" owes about 350k on his mortgage, the house would probanly fetch slightly less in todays market. He took a pay cut at work so is now unable to afford his mortgage. A few years ago bob's bank gave him a home equity line of credit for about 270k which he never touched until recently, where he is now borrowing about $1500/month to help pay the mortgage. This HELOC is at 5%. What would be the best thing for him to do in this situation.

a. Keep taking money out of the heloc and worry about it later.
b. Cut his losses and forclose
c. Bankruptcy?
d. Take some of the money out of the heloc and file bankruptcy
e. Any other suggestions?

I have him calling his bank tomorrow to see if they can work with him somehow, but it doesnt look good.

[Woof Woof Woof!]

Originally Posted by MDtech123

Hi all, A friend of mine brought up an interesting situation to me yesterday, "Bob" owes about 350k on his mortgage, the house would probanly fetch slightly less in todays market. He took a pay cut at work so is now unable to afford his mortgage. A few years ago bob's bank gave him a home equity line of credit for about 270k which he never touched until recently, where he is now borrowing about $1500/month to help pay the mortgage. This HELOC is at 5%. What would be the best thing for him to do in this situation.

a. Keep taking money out of the heloc and worry about it later.
b. Cut his losses and forclose
c. Bankruptcy?
d. Take some of the money out of the heloc and file bankruptcy
e. Any other suggestions?

I have him calling his bank tomorrow to see if they can work with him somehow, but it doesnt look good.

Is that the same Bob who is on those late night commercials smiling and waving at all the ladies in the neighborhood?

[8 SNAKE]

Don't know enough about Bob to make much of a judgement.

Is there much of a chance that his employment and salary situation will improve to the point where he can afford his mortgage again? If so, I'd try to ride out the storm and keep my credit in place.

I highly doubt that Bob will be able to pull a lump-sump from his HELOC and then file for bankruptcy with that cash in hand. Judges aren't stupid enough to fall for that game. Any financial activities that Bob has been a part of lately will surely be scrutinized. As a result, might as well mark "D" off your list because it's not going to happen.

No matter what the case, Bob should talk with his lender immediately (like you recommended). As long as he's honest with them and goes forward with honest intentions, he'll figure something out.

[foma]

There's not enough info and he needs to do the math and not get some stranger to do it for him.

Depends on the guys' mortgage interest rate, what his objectives are, his other loans, just to name a few things. I'm not an expert but common sense tells me that he needs to seriously assess his situation if a friend is asking for him.

[Mircea]

Originally Posted by MDtech123

Hi all, A friend of mine brought up an interesting situation to me yesterday, "Bob" owes about 350k on his mortgage, the house would probanly fetch slightly less in todays market. He took a pay cut at work so is now unable to afford his mortgage. A few years ago bob's bank gave him a home equity line of credit for about 270k which he never touched until recently, where he is now borrowing about $1500/month to help pay the mortgage. This HELOC is at 5%. What would be the best thing for him to do in this situation.

a. Keep taking money out of the heloc and worry about it later.
b. Cut his losses and forclose
c. Bankruptcy?
d. Take some of the money out of the heloc and file bankruptcy
e. Any other suggestions?

I have him calling his bank tomorrow to see if they can work with him somehow, but it doesnt look good.

If he wants to file bankruptcy, he cannot touch the HELOC.

One of the changes in the bankruptcy laws was to prevent abuse of the system. Any debts undertaken in the year prior to filing the bankruptcy cannot be included. Any credit cards or lines of credit used in the prior year cannot be included.

If he were to file bankruptcy, he could discharge the debt for the mortgage, but not the HELOC. That would leave him with a judgment against him with his wages being garnisheed for the rest of his life.

If he can hang for 9 months without touching the HELOC then he can blow off the mortgage for the last 3 months of a year and then file bankruptcy before they start to foreclose.

Even with an idiot attorney he should be able to delay the bankruptcy proceedings for 2-5 years, and that will give him a chance to sell the house, borrow from family and friends to get back on track or make other arrangements to dispose of the house.

[sandcranelady]

Lots of people are in your situation, doing the same thing, to live. I would make appointment with a free consultation attorney and find out what your options are. If you make under your state medium income you can file chapter 7. If not you may have to go with 13 to save your house. Lots of people are just letting the house go in chapter 7. My neighbors did same thing, they filed and walk away from the mortgage.

[Kootr]

Your friend Bob first needs to talk with his lender and be totally upfront and honest with them. Then he needs to look at where his money is going and start cutting back on such things as the late model cars he is buying/leasing, eating out, buying unnecessary clothing, country club dues, etc. That also means means cutting back on spending on the children too, including toys, private school, etc. Then Bob should think about getting a second job. Certainly he has 4 hours where he can work part-time doing something. His integrity is on the line!

The bottom line is this - if your friend Bob decides to allow foreclose it will cost me, and others like me, to bail him and his lender out of trouble. And personally, I don't even know your friend Bob! Oh, I almost forgot - I can only hope that if your friend Bob decides to walk away from his mortgage obligation he will pay a very heavy price for doing it for decades to come, because he would not deserve to be looked at as a credit-worthy individual. And the same goes for his wife... That's what I think your friend Bob should do...and how I would feel about him if he runs away from his obligations.

[himain]

Mircea-You are incorrect with your statement saying that any credit cards or line of credit used the in year prior to bankruptcy cannot be included. My friend who just went to see a bk attorney is having everything wiped out included purchases that were made 5 months ago on cc's. Before filing and during the BK process, you cannot open any new accounts or used any of the accounts that are to be included in the bk.

[Mircea]

Bankruptcy operates on the principal of, "If you don't ask, the answer is always 'no'."

You always include all debts in filing. There 19 types of debts that cannot be legally discharged. Pursuant to 11 USC 727; Fed. R. Bankr. P. 4005, the creditor has the right to challenge any debt included in a bankruptcy, for any number of reasons.

Those reasons include perjury, fraud, fraudulent transfer, fraudulent concealment, and maliciousness.

Under current case law from Federal Circuit Courts of Appeal, creditors can move to strike as "malicious" any debts undertaken within 1 year of filing.

Understand such debts are not automatically excluded, rather the creditor must move to file an objection.

I believe the 2nd (NY/PA area), 5th (LA/MS area), 9th (CA/West Coast) and 10th (Mountain states) Circuit Courts allow 6 months. I haven't checked the case law for those circuits in a year or two (I don't live there and don't really care).

In your friend's case, some of his creditors may move to strike the debt or portion thereof. If they don't, he's lucky and they'll be discharged, if not, and they move against him, the entire debt will be excluded and they'll send collectors after him once the bankruptcy is discharged, or the court may order him to pay it, or the court may order him to make payment arrangements, or a portion of the debt will be excluded and he'll have to pay it.