QUESTION: My husband and I used to have good income. I am a nurse and my husband is an accountant. Last year my husband had been laid off because of the economic recession. Now, our combined income only averages $6,500 per month. Due to the dip in our income, we are struggling to pay our mortgage and credit card debts of about $150,000.
Our principal loan is now $620,000; however, the market value of the house is only $450,000. We also have a Home Equity Line of Credit (HELOC) of $100,000. We also have 2 cars. My husband uses our old 2002 Mercedez Benz C280; and my car is a 2006 Lexus GS 300. Apart from my 401K which is about 90,000, all our savings had been depleted.
We are still current in our mortgage payments but we have not been paying all our credit cards for three months now. Every day, they are calling us at our cellphones, home and even at my place of work. One card even threatened to sue us. It is so stressful and embarrassing. My co-workers said that they might take my salary because it happened to her friend. Can they do that? Will we lose our cars too? If we can get rid of our credit card payments and the HELOC payment, I believe we can survive this recession. We have 2 children who are still studying and we do not want to give up our house. Is it still possible to keep our house?
Answer: You can get rid of your credit card debts and the HELOC by filing Bankruptcy under Chapter 13. Chapter 13 will allow you to keep your property and pay only a portion of your debts over time, usually 3 to 5 years. Unfortunately, your combined income is still above the family median income for California. That is why you cannot file Chapter 7, which is a total discharge of all debts.
Since the fair market value [$450,000] of your house is below your principal loan [$620,000] , you are under water for $170,000. However, you can try to negotiate with the bank to lower your interest rate or even your principal. Your HELOC loan is completely under water. Hence, if you file Bankruptcy under Chapter 13, you can lien strip your second or junior loans which are under water. After you have filed Chapter 13, you can now file a Motion to Lien Strip your HELOC. After hearing, the court will declare the HELOC loan off your property title and it will become an unsecured debt. You will still be paying this loan, however, since it becomes an unsecured debt it falls in line with your other unsecured debts such as credit card or consumer debts.
You and your husband will be able to save your house, cars, and 401K contributions. Since you are not behind on your mortgage, you can continue to pay the bank directly. With regards to your cars, if you and your husband file for bankruptcy, then all the cars can be covered by the exemptions provided by the bankruptcy court. Your 401K contributions are safe from bankruptcy. You will be paying a portion of your disposable income to the Chapter 13 Trustee, who will apportion the payment to your creditors according to your payment plan. After you file for bankruptcy, creditors will stop calling you. Hence, filing a Bankruptcy petition under Chapter 13 will help you and your family survive this recession.
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If you have any loan from countrywide or any of its affiliates, please call our office at 213-639-3888 or e-mail us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Our office is located at 3699 Wilshire Boulevard, Suite 720, Los Angeles, California 90010.
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This article does not constitute any legal guarantee or advice for any individual matters and does not create attorney client relationship with the readership.
( Published February 8, 2010 in Asian Journal Los Angeles p. C4 )
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