Met with the bankruptcy attorney today. Quite an enlightening experience. Here's the breakdown. It costs about $2200 for a Chapter 7, which is a liquidation of your assets of anything over personal allowances. In Arizona, personal allowance for home is $100K, then you have a clothing allowance, tools, electronics and so on and so forth. Some of these are kind of grouped together, but wedding rings are a separate category if I'm not mistaken. I think in Iowa you are allowed to keep two firearms regardless of value from liquidation and in Florida, you can keep your house no matter the value as long as it is your primary residence. That's how millionaires can keep their mansions in Palm Beach and declare bankruptcy.
Given that I owe about $5K in "dischargeable" debt (credit cards, medical bills, etc) it's not really a great idea. Student loans are exempt from bankruptcy unless you can prove a true hardship that would preclude you from being able to pay them back (say you became disabled and unable to work, well, you probably can't pay them back, so they would more than likely discharge them, I am assuming, I don't know if this would be a reason or not, you know, I'm not a lawyer and all that). And then I owe the mortgage. As I have not been issued a foreclosure notice yet, there really isn't much that can be done with that. I can't discharge the 2nd mortgage in a chapter 7. Dang.
We talk about a couple other things, discuss foreclosure stuff, he lets me know that if I do get the foreclosure notice and they sell the house and not for the amount owed on the loan, I am not liable to pay them anything. They got the property back and that's that. The secured debt has been repaid essentially. Now, I may get a letter saying that I owe them money, in which case I can pay him a small fee and he will draft up a letter to send to them to say that, sorry kids, she doesn't owe you anything pursuant to this statute, thanks and good day. I SAID GOOD DAY, SIR! (this is because this is NOT a HELOC, rather it was an originating loan. I love the law sometimes.)
Ok, so that is if I decide to walk away from the house.
Second option, if I want to keep the house, is to see if it is worth LESS than what I owe on the first mortgage. If that is the case, then I can do a Chapter 13 bankruptcy, and the second mortgage goes bye bye because there is no equity in the house and therefore there is nothing to secure the house and they can go "pound sand" as he put it. I bet he would also say "Good day".
These are my options. I think, for now, I'll stick with the foreclosure route. I do like my place, but, you know, forget it. It's a terrible loan that I got into and I think that this has been a good learning experience for me. I'll stay in there as long as I can and then move on. At that point, who knows, maybe it will be time for me to leave Tucson and go seek greener pastures. Or, maybe I'll have enough saved that I can just buy a place elsewhere. Or, maybe, I'll have enough saved and can start the nomadic lifestyle. We'll see what the future holds, but for now, I feel like a huge weight has been removed from my shoulders.