buying another house before banko?

[learningfast]

What is the name of your state? MN

Hi. I have read the postings for hours now and haven't found anything pertaining to my situation. Can someone please help?

My husbands income has taken a nose dive and it doesn't look like we can afford our home, or anything for that matter anymore. We have it on the market but it is not a good market and doubt we will be able to sell it. Even if we can, there is no equity to be had. We would have to come up with money to get out.

We got approved today to purchase a downsized home without checking my husbands income. We have been checking into bankruptcy in the last few weeks as well as facing the probable foreclosure. My lawyer seems to be giving me mixed messages. He says he wants to be clear that he is not advising me to incur further debt. But then he says he would get a home secured while his credit was still good enough to do so. He says he has seen people get approved for lower mortgages, let the higher mortgage house be foreclosed, and then file bankruptcy. Is this the best way to protect my family and try to survive this process or is this a bad idea???

I really need advice and my lawyer's hands seem to be tied where he can't be
totally honest with me about what is best for me??

[bigun]

Under bk reform, lawyers are not supposed to encourage clients to incur additional debt.
What he describes is pretty routine. Get your housing and auto needs squared away before you file.
I would not buy the smaller house if it will be a struggle to make the payments. I also wouldn't crawl in bed with subprime lenders. Nothing wrong with renting for a few years as you recover.

[learningfast]

I applied for an additional mortgage but it is at a higher rate because they didn't check his income. Is that considered "subprime???"

[bigun]

A subprime lender is someone who makes loans to people with shakey credit and chrages a high interest rate and loads up the loan with fees and prepayment penalities.

[learningfast]

First I have to say thank you. I can't tell you what a relief it is to find a forum where I can get advice that I can't seem to get anywhere else. Thank you so much for your time.

Secondly, the mortgage we got approved for is a higher interest rate because they didn't check his income. It would be a 7.75% 30 year fixed no prepayment penalty mortgage. I am not sure about fees to close at the moment. Does this sound like something that would be a good option to jump on now so we could have a mortgage going into banko or does this sound like "getting into bed subprime lender?"

Is there a consequence for surrendering my current home and switching to the other mortgage right before filing for banko??

Is an FHA mortgage a regular prime rate mortgage??

If we just got a large tax refund this year will we be required to give it back if we spend it on getting into the new home??

Please help! I can't sleep or eat due to the stress and I am just trying to learn as fast as I can so I don't shoot myself in the foot about timing of banko.

[bigun]

7.75% seems high to me. The big question is, can you 2 handle the payments with comfort post bk. I'd not file bk and immediately dive into another mortgage and have to struggle to make the payments in a timely manner.
This is just a personal opinion and others will certainly differ but- I think the best course of action post bk is to learn to live below your means, develop strict budgeting skills and put money in the bank. Max out all retirement accounts. Be sure you've adequate auto insurance, renters/homeowners insurance as well as long and short term disablity polices. If life insurance is necessary, get term policies.

Having said that, there will be no consquences in getting a mortgage for a smaller and cheaper house and surrendering the other one in bk. You won't be responsible for the deficiency balance-your lawyer just can't encourage you to take this course.
Using a tax refund for a down payment or legal fees or living expenses prior to filing is OK.
Take your time. Does your lawyer believe you've passed the means test?Have you done the CCCS thing yet?

[learningfast]

I have not done the testing yet. I talked to one lawyer who felt we would more than qualify for a chapter 7 but he doesn't return calls which I don't like. I have a meeting with another lawyer on Tuesday which I have to fill out a ton of paperwork for.

I have heard that it is difficult to rent after a bankruptcy and I am afraid of being out on the street.

I have also heard that it is very difficult to get a mortgage again after you have a foreclosure and a banko on your record. Does a foreclosure on top of banko keep you from purchasing a house again in two years??

Your advice seems very sound...learn to live below our means seems to be the general lesson here. I am afraid we will never be able to afford a house again with the prices skyrocketing as they are. The smaller mortgage is for the cheapest house on the market here. In two years the payment would even be worse and therefore, unattainable again.

One other piece of information on my case is that I have 18K in stock that my grandparents gave me last october and a recent tax refund of 10K. I know this is way too much money to have but I feel like if I don't put it towards a house it will all be taken from me or it will be dwindled away continuing to live in this house that we can't afford. I don't want the money to be wasted living at a higher standard nor do I want to lose it to the courts. In a way I wish they didn't try to help me but since they have I want to make the best out of their efforts.

Any advice on what to do with this cash would be very helpful. I think timing will be everything in my situation but I don't want to cross the line into fraud either.

[bigun]

With $28K in cash, you're in a better spot than many who come through here.
I'd look at the totality of your circumstances. Your husband won't be underemployed forever. How much is your unsecured debt? It may make sense to stay current on your mortgage and sell the house and rent for a time.

[learningfast]

I know we are in a better spot than most for right now. If we sit on this money and hesitate much longer it will be eaten up in living expenses and we won't have any choices left to be made.

Our house is 380K and very unlikely to sell without coming up with atleast 10-20K to get it sold. That leaves us with foreclosure practically unavoidable unless we throw all our money towards avoiding a foreclosure.

Our unsecured debt is about 50K. My husband works on commission. He is still employed but until the economy picks up and really picks up for the middle class, he won't be making much more than 40K a year. There is no way we can pay our debts even if we did get out of the house and rent. If we rent we will still be barely keeping our heads above water without debt and car loans on top of that.

Which leads me to the conclusion that banko and foreclosure are probably inevitable. It doesn't make sense to me to spend all my money trying to avoid foreclosure when I will have to file banko anyway.

What do you think? My lawyer has said a foreclosure won't hurt credit more if I am filing banko anyway. Of course he is biased.

Is there a safe way to retain that money without just dwindling it away on living above our means for another year? I am under the impression we can have 20k to our names with the wildcard exemption. Not sure if this is exactly true looking at other peoples entries in here.

What would you do? We have three small children we need to know we can afford to shelter and feed no matter what happens.

[bigun]

You two are making some decent money. The albatross is that house and the attendant expenses.
Were it me, I'd sit my family down and let 'em know things are gonna be tight for awhile.
Then, I'd do all I could to sell that house and find something to rent while the family gets their finances back in shape. If you have to use some of the cash-well, that's what it's for. I'd stop using cc's and plow every spare nickel into paying those cards down with the goal of paying them off.
I'd make more of a fight out of this thing.

[learningfast]

Maybe I am being painted a rosy picture but it seems that banko does not have horrible consequences. I feel like with 50K in debt and after we pay say 20K to get out of the house...we are down to 0 in assets and 50K in debts. My husband has been working 90hours/week for 8 months and it is taking such a toll on our family and health.

I stay at home with the kids. We don't have family anywhere near us so it wouldn't be cost-effective to put them in daycare.

The family knows things are tight because they don't get to see dad anymore. They see dad a total of 5 hours a week and it is causing serious behavior issues not to mention the overall stress mom and dad are feeling doesn't make for a nurturing enviornment.

I know we can't keep up the 90 hours a week. Anything would be better than that at this point.

How do you tell when it is pointless to fight versus something that can be overcome? When would you draw the line on getting the house sold in a bad market??? Would you wait until you have been bled dry or is there a point that it would be time to foreclose?

What about foreclosing and not filing banko. The lawyer says not to worry about the credit if I'm going to do one or the other but , again, he is biased.

[bigun]

Well, bk is worse than foreclosure. Like any other negative, it'll hurt less and less as time goes by. Plus, you don't have the liability of a deficiency balance {if any} if the mortgage is discharged in bk.
The thing I don't understand is the desire to buy a home with $40K in HH income. You can't even afford that mortgage with a family of 5 unless you go back to work.
You seem determined to file bk. Just get some good legal advice on acceptable methods to put that money into exempt assets before you file.

[learningfast]

I don't mean to be determined to file. I was thinking if we buy a house now we have that ability but you are right then we will be stretched to make that payment each month which puts us right back into scary territory.

Since I have been talking to you today I am starting to turn away from buying and thinking more about going to live with my mom and just dealing with not having husband near us for a couple of years. We could really save and if he is working 90 hours a week anyway, maybe that is the best.

I don't want to be determined to file bankruptcy. I want to be educated as to when you know if it is right for your family.

In regards to what you would do with your family....when would you decide to let go of the house and deal with foreclosure?? possible move to family or rent instead of trying to continue with the payments?

Would you spend your remaining 20K getting out of the house????

[bigun]

I'd talk with a couple of realtors and get some idea of what that house would realistically net. If you could come out of that with anything close to a whole hide-the rest of your situation is manageable.
Separation seems kinda of drastic. You still have the cc debt and any auto loans to deal with.
I'm not saying you shouldn't file. I was under the impression you were working as well. Just couldn't figure how a $40K income even if the loan is no doc would swing a house.
Keep talking with lawyers. You don't have to file today and maybe you can figure out some way to put the money in exempt assets.

[learningfast]

Thank you so much for taking the time to look at my situation and the situations of all these people. It is an invaluable service you are providing!!!

I hope a new lawyer will shed better light on our options than the last one did. Then I just have to decide how much I am willing to risk before I foreclose on the house. I had the last downsizing house on the market for over a year and we lost about 60K trying to get out of that house. I am not willing to make that mistake again!

Thank you so much though....

I will be watching these forums closely for topics that pertain to me and I am sure I will be posting again. I feel like I am stabbing in the dark and this is brilliant light.

Thank you!!!!!!!!!!!!!!!!!!