Should my mom file bankruptcy

[123boxie]

Hello all you have been great in questions answered for me, but now I need your help for my mom.

Situation:

She owes 90k in credit card debt

Owns a farm that could be worth 250k and owes only 65k on that property.

She only makes 612/month in social security and does not work due to medical reasons.

She is delinquent on credit cards and they are at the phase where they are going to take her to court. She cannot refinance because of her credit score. Should she file BK?


What do you guys think?

Jen

[momofthree]

Depending on what state she's in, she may lose her farm if she files...It would have to be a chapter 7, she cannot fund a ch.13 payment with a poverty-level income....

[123boxie]

The state is Indiana

[newbie2]

Hello all you have been great in questions answered for me, but now I need your help for my mom.

Situation:

She owes 90k in credit card debt

Owns a farm that could be worth 250k and owes only 65k on that property.

She only makes 612/month in social security and does not work due to medical reasons.

She is delinquent on credit cards and they are at the phase where they are going to take her to court. She cannot refinance because of her credit score. Should she file BK?


What do you guys think?

Jen

Has your Mom thought about selling the farm, paying off her creditors and putting the rest in the bank to live off of?

She can't refinance because of her credit score AND lack of income. She needs money to live. The little bit she receives is obviously not enough to live on. My opinion only, but selling her farm to obtain the cash to maintain even basic expenses should be considered.

[123boxie]

I know most of you wouldn't understand, but my mom would sooner die than sell her property. I will always help her financially keep the utilities on and food on the table, I just don't want to pay all the creditors. Her mortgage is only 385, which she can pay from her check.

[newbie2]

I know most of you wouldn't understand, but my mom would sooner die than sell her property. I will always help her financially keep the utilities on and food on the table, I just don't want to pay all the creditors. Her mortgage is only 385, which she can pay from her check.

The problem is this: The creditors see a juicy piece of judgement lien meat (your Moms property). Many people who get sued by their creditors don't have much for the creditors to go after. Your Mom isn't one of those people. She has well over $100,000 in equity in her farm. They (the creditors) see that and are going to cause her quite a bit of stress about it. Is the stress of judgements and lien worth it to her?

If her mortgage is more than 50% of her income that is no way to live. How long will you be able to go on subsidizing her income?

Unless your state allows that much of equity to be exempted she's going to have a problem on her hands with the creditors. She doesn't qualify for a Chapter 13 with that amount of income, and yet she probably has too much asset in the farm to qualify for a chapter 7 and keep the farm.

[SMinGA]

Indiana only allows $15,000 in homestead exemption. Meaning bankruptcy would not save the farm. The trustee would force the sale. After the mortgage & selling expenses are paid, you mom would get $15,000. The trustee would get a cut, and the creditors would be paid. If anything remained after that - it would go back to her.

She can probably apply for assistance to help with food and maybe even utilities - but there is nothing to stop the creditors from filing lawsuits and ultimately putting a lien on the property.

Would it be possible for her to sell part of the land? Maybe not the entire farm, but if its on a decent amount of land she might be able to sell part for enough to settle with her creditors?

[AngelinaCat]

I know most of you wouldn't understand, but my mom would sooner die than sell her property. I will always help her financially keep the utilities on and food on the table, I just don't want to pay all the creditors. Her mortgage is only 385, which she can pay from her check.

I DO understand; we live on property that my g-grandfather bought in 1860. The difference here is that we sold the property to a state agency in 2001 in order to preserve it and turn it into a park. I am the last of the line. There are no heirs, and if there were, they couldn't pay the taxes. It would have to be sold and broken up and we didn't want that, nor did our ancestors.

So we sold it and the proceeds were put into a non-revocable charitable trust, from which we get a yearly stipend. We retain a life-estate and are responsible for the taxes, etc. The trust and the property cannot be touched. But we did this in 2001, well before all the krap that befell us and caused us to bk in 2007.

For your mother to try to do something of the sort now, and then file bk would be VERY problematic, because it would be viewed that she is trying to hide assets. I think you and she need to schedule some free consults with bk attorneys.

Good luck!

[NoTomatoCan]

Similar to what SMinGA suggested, I had a close friend who purchased his mom's home so that she could pay off her credit card debt, get rid of her small mortgage, and avoid bankruptcy liquidation.

The son had good credit, and could afford the payment. The mom was able to live in the home as long as she is able to (and is still living there today).

It sounds like it won't be possible to keep the home in BK, so maybe this is an option.

There are lots of tax and estate planning implications by doing something like this though, so if you did go this route you should contact a qualified estate planning and/or real estate attorney.

[AngelinaCatHub]

How is this land Titled? Is your name on it in any way? Is it only in her name or is it possible it could be in a revocable family Trust?

It is also possible that she is forced into a bankruptcy.

You have offered a unique situation here. In Florida, they cannot take your home or force a sale of it to satisfy a lien. I'm not sure about your state.

I'm going to PM JB. If anyone can come up with a suggestion, he can. 'Hub

[justbroke]

I agree with the others. The problem with emotional attachment to property is that property can be taken in most States. If she lived and held that property in Florida (or Texas), we wouldn't be having this discussion.

Unfortunately, the exemptions on that property are abysmal. I think that if she were to sell the property and then "negotiate" for less than the full amount (settlements under 50%), she'd come out much better than if they take the property in a lawsuit.

As others have suggested, she could sell it to you for FMV and take the proceeds. However, you'll literally (and technically) be stuck with paying her creditors off over the next 30-40 years.

I don't know how it is titled, but if it's only in her name, then it is fair game for her creditors . If it's a TBE with her and you or some other relative, that will protect it. However, don't go re-titling it to "hinder" or delay creditors... as that will just get you in more trouble.

You have to remove that attachment with the property. If you don't you'll end up losing ALL the equity and not be in any sort of negotiating position. I would seek advice of an asset protection attorney to see what her options are in her State.

[123boxie]

I became aware of this on Wednesday. At that point I called the delinquent creditors and offered settlements. I have most at around 35% so I should take their offers and move heaven and earth to pay this off?

[justbroke]

I became aware of this on Wednesday. At that point I called the delinquent creditors and offered settlements. I have most at around 35% so I should take their offers and move heaven and earth to pay this off?

Yes, but I would consult an attorney on the settlements. You need to be absolutely sure, and in writing, that they are not going to sell the deficiency to JDBs for further collection. You need to be absolutely sure that it is forgiven on 1099-C. You need to look at the TAX consequences on the approximately $60K in forgiven debt (significant tax issues).

I would not do this on my own. Again, this has severe tax penalties. You need to consult an asset protection attorney.

[momofthree]

Here's an idea:

Forget about bankruptcy.

Have her sign the land over to you--remove herself from it completely so that creditors cannot put liens against it if she doesn't pay. She would, of course, continue to pay the mortgage on it, and continue to live there.

Then she could safely stop paying her debts and there is NOTHING they can do to her. She doesn't have any income or any property. She could safely tell them to pound sand and there's not a darn thing they could do about it....bankruptcy would be unnecessary at that point....

[AngelinaCat]

The problem is Momofthree, that the OP's mother is already getting noise from the creditors and any kind of title transfer now will cause problems. Everything has got to be done before any lawsuits can be presented, and there may be a lookback period for title transfers.

Also the OP indicated that Mom would rather die than sell the land--and I would guess that includes to a child or other relative. I bet Mom grew up or lived a good part of her life during the Great Depression, and to those people the land meant everything. My family was that way, and they fought tooth and toenail to not lose the land. That is one reason why 'Hub and I were so careful to honor them with working out a way to put our land (266 acres) into a park where it would be kept intact and not developed.