Re-Financing Our House

[Stranny80]

I need a little help here as I am trying to figure out whats to do. Before I begin, I want the readers to know that by no means is this an attempt to fraud or undermine any bankruptcy laws. I am simply confused on these items and I would like professional clarification that my lawyer would not care too kindly of my asking. So here we begin.

My wife (Wife Only) filed a Chapter 13 Bankruptcy over a year ago and our lawyer has been working with the trustee to get us to an affordable rate; it has been a fight from the word go. Over the course of the last year we have drained our savings, cash flow and have sold off anything that we could in order to make a payment or two more. Because of our current financial situation, we are now at the point where we need to refinance the house and sell one of our two businesses. The successful completion of these two items will allow us to pay off some of the debts in my name and allow us to finally get to a sense of normality. Now, I am not on the Bankruptcy and to the best of my ability have maintained decent credit and separation. Any debts that were in both our names, I assumed and have made current payments to. The house loan however, is only in my name and I am currently working on refinancing. After speaking with my wife lawyer, I am told a motion will have to be filed in order for my wife to sign the deed (signing of the deed by your spouse on real estate is required by NE state law). Personally, I just don't understand why since she is not on the current loan and will not be on the new one. It won't even show up on her credit report. So here we are, I have already secured a loan and closing will be happening in the next week or two and according to her lawyer, we will have to wait 21 days after filing the motion to get the courts approval and thats ultimately up to our pain in the *** trustee who believe that being self employed means you have pockets full of cash. This information leads me to my first question? What happens if my wife signs the deed and I close on the loan? Again, she is not obligated to pay the loan back as she is not the borrower and its only an asset to her if something happens to me or our marriage. Which we are not planning to divorce and I have a large life insurance policy.

Second question is - Is there anyway around her signing the deed? - NE law

Finally, If the mortgage is in my name, its on my credit report, its based on my income and debt ratios and my loan application, why does her bankruptcy have anything to do with it.

The biggest problem that I am facing here and the reason I care so much is that the trustee will think that selling off a business (which we have an accepted offer and a motion already filed) and now a refinance in progress (motion already filed but won't get approved in time) that we will have a surplus of money and deny our motions unless we use it toward the bankruptcy. If this happens we will be in no better of a situation than we are now and it won't be long before I am joining my wife. The only advantage we have is that we have agreed to increase our monthly payment by 25% if these items are approved.

So theres my story and my questions. Your help in this matter is greatly appreciated. I am sure my answers won't be to my liking but I so curious I had to ask.

[justbroke]

(I take note that you write about paying off debt "in [your] name" and not that of your (debtor) spouse. You also are paying dischargeable debt that is co-debt and protected by the co-debtor stay in 11 USC 1306. I assume you did so to protect your personal credit since you did not file.)

Personally, I would follow what my spouse's bankruptcy attorney is telling me. Your "debtor" spouse has an "equitable" interest in the property. The bankruptcy code requires that any sale of property (or interest in the property) requires approval of the bankruptcy court. (FRBP 6004 at a minimum which would technically include refinance.)

I wouldn't argue that a trustee believes that a self-employed makes a ton of money, rather than how could you show, through evidence, that your (debtor) spouse is not receiving extra benefit because you are a non-debtor spouse, not participating as a co-debtor, and possibly not contributing all that you can to the plan. The Trustee should always do a "good faith" analysis to determine whether this disadvantages the unsecured creditors. While you, the non-debtor spouse, are technically outside the reach of the Trustee, any contribution that you are making to or are cable of making to your (debtor) spouse's Chapter 13 Plan of Reorganization is clearly on the table.

Think about it. A Chapter 13 Trustee has a difficult time dealing with a debtor(s) that has hourly wages that fluctuate, nevermind the earnings of a (non-debtor) spouse based on income from self-employment. Then add the potential contribution fluctuations to the (debtor) spouse's bankruptcy estate. While they may not trust you and you're being honest, they just don't/can't trust you because they have been burned before. Remember that the Trustee acts on the creditor's behalf and is trying to collect the maximum allowed by law (up to 100%) of the debt.

Is there away around the law? Even though you write that you're not attempting to circumvent the law, I wouldn't skirt the bankruptcy court and I can neither advocate nor condone "skirting" the law. Imagine your (debtor) spouse being forced into a Chapter 7 liquidation as a penalty or, worse, having the case dismissed and all the creditors coming back at you (and many other variations including, but not limited to, prejudice and inability to file another case within 180 days of dismissal)?

Lastly, you mention that you don't think that you should pay more if the sale and refinance happen because you won't have any more money, but you then concede that your (debtor) spouse is increasing her plan payment by 25%. Your (debtor) spouse's plan payment should reflect what's either on your Schedule I/J (including debt service) or should be easily identifiable. I would not lay this entirely on the Trustee's doorstep and blame them for being unable to easily and readily determine what the disposable monthly income (DMI) of a debtor spouse should be, when the non-debtor spouse operates businesses.

If your (debtor) spouse proposed a good plan to the Trustee, then it shouldn't be an issue. In fact, your (debtor) spouse's lawyer may have already reached out to the Trustee to discuss, which is common practice.

This may not be what you want to be reading tonight. I just wanted to give you some perspective of how it looks from the Trustee's angle. While your (debtor) spouse's case is not unique it is not common to have a non-filing spouse operating multiple businesses, paying dischargeable debt, and attempting to refinance an asset into the non-filing spouse's name.

It's probably as simple as this; the Trustee simply does not care about a non-debtor spouse's credit and/or income issues. The Trustee only cares about the debtor (filing spouse) and whether they are contributing all disposable income (DMI) to the Plan. Maybe you're just delaying the inevitable, but that's (likely) not the Trustee's concern.

In the end, until the motion is either opposed or denied, this is just purely speculation (something I rarely do here). Let's wait until we hear from the Trustee on the Motion to Modify Confirmed Plan and Refinance. Then we can get into the nitty-gritty since the Trustee's opposition would be in a written form. Then you'll know the Trustee's true angst with the case and/or this particular motion. It reads to me as though your attorney is working for you and is doing things by the book.

(I wrote a mouthfull there! Maybe despritfreya may chime in. I admit that I may sometime seem like an advocate of the Office of the United States Trustee, but I am not. I am pro-debtor. The more we understand about the process, the better we are able to focus on the things that will make us successful.)

[Stranny80]

Thank you for your reply. I certainly agree with what the trustee is trying to do. The biggest problem I have with whats going on is that my Wife has zero disposable income. I have made 100% of the payments from the day the bankruptcy has been filed. The debts that are being paid are not mine, and I truly mean not mine. Many I didn't even know about. My wife and I have separate checking accounts and financial obligations. Its almost like we are two different people. The biggest hold up has been my income as I support our family and now that its gone I am down to this. So with out repeating myself and drawing out to a long discussion. I have another question that I would be happy to have your opinion on. What will our states Homestead Exemption play a role in getting this approval? In NE we have a 60,000.00 Homestead Exemption. Furthermore, how is this calculated? If my wife is the only one filing for bankruptcy and there limitations to this? Again, she is not on the loan and even if we were to sell the house or refinance and separate the income, best case scenario she would only get half. To speak intelligently, our refinance will provide us with 20,000.00 of the estimated 70,000.00 In equity in our home. lastly, when calculating the equity in your home to be exempt, do you include professional fees such as realtors and other necessities if you were to sell the home. As you can see we are just above the 60,000.00 threshold.

[justbroke]

No extra explanations required as I understand your issues. I filed and also had a non-filing (non-debtor) spouse, but my non-filing spouse didn't have any income so it was a bit easier. I did own a real estate investment company and tried to operate that company while in my Chapter 13 but that was way too much of a hassle for me. I personally understand the challenges as a debtor, trying to operate a business, and the Trustee being more thorough. In my case, at least my DMI was already negative (allowing me to convert to Chapter 7 after deciding to give up on saving investment property).

If your wife has zero disposable income, then why are you in a Chapter 13? Unless you are saving property then a Chapter 13 is not required for a debtor with no disposable income. Unfortunate as it is, your combined DMI is your non-filing spouses "DMI" for purposes of a Chapter 13 plan to the extent you contribute to any bills. I just wanted to let you know that.

When talking about equity, exemptions and the trustee, realize that the trustee doesn't care about professional fees and other fees if you were to sell your home. The trustee's calculus typically only looks at the big number (the equity less the homestead exemption). Seriously, there's no way to know what the trustee is thinking or how they will react to your (debtor) spouse's motion to refinance and modify plan. The trustee will go through, undoubtedly, the same mathematical and financial analysis that your attorney performed and maybe with some more scrutiny. The factors are mind blowing such as how much of the equity as gained after filing.

I think this is specifically something that you just need to see how it plays out. I just want you to know that I (and we) all hope that this works for you and you're able to get back on your feet. If your attorney did all the math and it is reasonably based on your actual income/expenses, I don't see any issue. Courts approve sales and refinances in Chapter 13s every single day.

[Stranny80]

I am told we are not able to file Chapter 7 because of my income. Im not sure what it is they have done but we do not qualify for a chapter 7 plan. Additionally, if we did, we would still have back taxes and secured loans that would need to be paid. Prior to this time in my life, no problem. However, now that I have spent everything, big problem. The trustee sees every opportunity to deny and reject any and all proposed plans and motions. We have yet to achieve anything with them in the last year. Personally, we are at a point of giving up and letting it discharge.

[justbroke]

Dealing with a Chapter 13 with irregular income is a pain in the neck. I applaud you for trying. Most Trustees object to any motion or proposed change and some prefer it to be heard by the judge. A motion to modify can always be heard by the judge and the judge renders their opinion on whether it is with merit. I have had things done over objection of both the trustee and creditors including my confirmation.

A Chapter 13 Trustee only makes money if you stay in plan, so their ultimate goal is to make sure a.) they protect creditor interests, and b.) they make you successful with your plan. Only you can decide if a (voluntary) Chapter 13 is worth it at this point. I know, from my personal experience, that it's no walk in the park and when your finances change you need to immediately (even in anticipation of changes) motion to modify your confirmed plan. A Chapter 13 can be a powerful tool to discharge things like penalties and interest on federal income taxes and/or the tax itself. Short of using a Chapter 13, you can always go into a payment agreement with the IRS to address the taxes, but the payment could be higher than your entire Chapter 13 payment. (My OPA was over $860/month just for the IRS but in-plan is was $500).

I wish you the best. I spent all of my considerable savings (over $100K), ran up over $120K to AMEX, about $50K to Home Depot and Lowes, around $20K to Rooms to Go, and a big chunk of my 401(k) to try to save my investment property business. I didn't realize it was a loss until I was 2 years into my Chapter 13. What I would do to have just stopped, did the Chapter 7 on everything (in 2008), and started over. I threw good money after bad (so to speak).

I hope that you reach something that works for you. I would wait and see exactly how the trustee responds rather than try to gauge how they may respond. You may even be surprised if they consent to the motion (I've seen this as well). Even if the trustee objects, for whatever reason, you still get to convince the judge. If the judge isn't convinced, then you'll have to, at that time, decide what you want to do (stay in plan, have your case dismissed).

[Stranny80]

Well here is where I am at. The trustee rejected the motion to sale one of our businesses based on irrelevant information. I also expect her to reject the refinance for similar reasons. Looking at the money we are to gain from both of these things things, we could technically pay off the secure creditors and still have a little money left over to pay off some of our existing debts and help us get through a tough time. This would leave the unsecured debtors unpaid and back after my wife. The idea would then to file again at a later date and try it over again when things are bit more manageable. Until then we would have to fight them off. However, my wife has zero disposable income, now has zero job once the business sells and only has marital interest in our real estate property since I am the only one on the loan. At this moment we are thinking it may be easier to let the case get dismissed and just get these deals done. Any thoughts?

[justbroke]

I won't pretend to know everything and I am certainly not trying to steer you down the wrong path. You seem to have worked through the numbers and determined that the alternate path (dismissal with a later refiling) may be better for the short term. You'll need to project the long term affects (or detriments) this plan could have. You may even be able to work out deals with the creditors for less than the entire claim value. In fact, most if not all of your unsecured debt was probably sold to a third party (B-Line, B-Real, LLNV, eCast Settlement, Roundup Funding, Midland Funding, just to name a few of them). You could "possibly" negotiate pennies on the dollar since those companies likely purchased your Chapter 13 claims for pennies on the dollar (as part of a large portfolio of "junk" debt). We call the junk debt buyers, JDBs.

If you do go the dismissal and settlement route, please be aware of any potential tax impact (1099-C Forgiveness of Debt), and make sure there's no blow back (the "deficiency" being sold to yet another JDB). You'll also have to deal with your taxes. If I were attempting this dismiss and settle strategy, I'd make sure that I spoke with a good asset protection attorney (if your current bankruptcy attorney is not that good considering that your problem may be your current bankruptcy attorney).

A Chapter 13 doesn't work for everyone and is especially frustrating when trying to operate a business; been there, done that. Please have your bankruptcy attorney carefully explain the impact of a dismissal (or voluntary dismissal), when you could refile, and what impact that would have on any unsecured debt. Hopefully all your secured creditors are actually "current".

[Stranny80]

Ok.. So I have a new set of questions for you. You said before that you had a real estate business. I too work within this market. I have several LLC's and partners. One of my LLC's purchases properties and rents them out. We are currently in the process of buying a property and soon will come time to sign the deed. Will my wife, who is the only person who filed bankruptcy and is not an officer of the LLC, have to sign the deed to the real estate property because we are married. I know she will have to for our personal property, however things work when the LLC is purchasing the property. Does this make sense?

[justbroke]

I have been away for Christmas, so please excuse my absence.

As far as I'm aware, and I'm no substitute for an asset protection attorney, an LLC can hold the property and the members (one or many) hold their equitable interest in the LLC's interests (in the property). Your spouse would have nothing to do with what the LLC owns. However, your spouse may have a marital interest in "your" equitable interest in the LLC. I have a friend that has this exact problem (but in a different State), where one spouse holds property in an LLC (two members not including the other spouse). The non-member spouse holds a marital interest in the member spouse's LLC interest.

At least that's my understanding. I've never had the marital interest when I held the properties (they were pre-marital anyhow).