Another bump in the road

[Slingerland]

Let me be a lesson in strategic planning...

A quick refresher: I am planning on filing a C-13 in December. I have rental houses (quite profitable) that I plan on keeping, just overwhelming student loans and credit card debt. My wife has previously suffered from cancer (in remission.) My "day job" employer almost went under two years back, and we only kept our jobs by agreeing to cut our pay 20%.

My wife is not filing in order to keep her credit intact. The majority (but not all) of the rental mortgages are in my name only. For the most part we have separate credit accounts and separate checking/savings accounts, so only secured debt is in common.

Also, our local trustee REQUIRES that ALL joint auto payments be made through the trustee's office. Our three cars are joint, so as a result, my wife will actually get a bump in her "take home" pay since I have to take over her car payment in my plan.

Okay... I thought I had worked out all the kinks until... my wife reminded me that she has a signature loan through a local bank that I had cosigned on (I had to cosign because the rental house mortgages she was cosigner on were skewing her debt-income ratio.) I had honestly forgotten about it since I never saw the payment going out.

Tonight I looked at her copy of the loan papers and (of course) it lists a bankruptcy by either of us as an automatic default. And I could see this loan blowing up in her face and dragging her into the C-13 with me. The loan has a right of setoff that could allow it to attach to my rental company checking account, security deposit account, etc. And in fact, one of my rentals is financed through this bank.

Originally my attorney thought we would just leave this account out of the payment plan, but in reading other posts here I am concerned that the bank would go bat-shizz crazy and clean out my accounts... then immediately sue her for the balance.

So... help me stop worrying, folks!

The way I see this, I have two options:

First option: I can leave this joint account out of the payment plan. I would ask my attorney to contact the bank up front and let them know what is going on. (Needless to say I would move my various checking accounts to another bank! ) Hope the bank is "okay" with this and lets my wife continue to make the payments she has been making already.

Second option: I can include this loan in my C-13 payment as a special 100% payback. But it would show up in my wife's credit report as IIB (the rentals and the cars will, anyway.) We're trying to keep her credit intact, so my question is: what would this actually do to her credit score, and her ability to get any credit for just herself?

In fact, the last question is a significant one: what will my C-13 actually do to her credit, and her ability to get any credit for just herself?

Last, anticipating a question: I have not presented this to my attorney yet. Scheduling has been a witch and he's had a death in family. So I'm asking for advice here to help me be better preparted for talking to him.

Thanks!!!

[ttg1]

It would help to know what you mean by keeping her credit intact. I'm not sure what your expectations are and what type of credit she will be needing in the future. As I'm sure you know, a credit score is only one part of a credit analysis. For some player's its a major part; for other's it's not. It's also worthwhile to remember that she can include a note on her credit report explaining the situation should adverse information show up on her report.

Finally, trying to predict when a creditor will sue is like throwing darts blind-folded. I'm a firm believe that you can't let what a creditor might do dictate your own plans. You need to do what's best for you and let the chips fall where they may.

[forgotten]

The way I see this, I have two options:

First option: I can leave this joint account out of the payment plan. I would ask my attorney to contact the bank up front and let them know what is going on. (Needless to say I would move my various checking accounts to another bank! ) Hope the bank is "okay" with this and lets my wife continue to make the payments she has been making already.

Second option: I can include this loan in my C-13 payment as a special 100% payback. But it would show up in my wife's credit report as IIB (the rentals and the cars will, anyway.) We're trying to keep her credit intact, so my question is: what would this actually do to her credit score, and her ability to get any credit for just herself?

In fact, the last question is a significant one: what will my C-13 actually do to her credit, and her ability to get any credit for just herself?

Last, anticipating a question: I have not presented this to my attorney yet. Scheduling has been a witch and he's had a death in family. So I'm asking for advice here to help me be better preparted for talking to him.

Thanks!!!

You are required to include all debts in your petition, this includes things you have cosigned for. You can not just leave it off. You could put it down as a normal unsecured debt and your liability would be discharged after you complete the plan and they got whatever percentage goes to your unsecured creditors.
They could file for relief of stay to collect from your wife. As you said, the loan would be in default so they may demand the entire balance from her that your plan is not going to pay.

As you mentioned you could list the debt as a 100% payback to protect a cosigner. This sounds like your best bet to me if your wife is not going to file as they would not be able to do anything to her to collect and as long as you complete your plan all is well.

All of your joint accounts (secured and unsecured) will be on her report as Included In Bankruptcy. This is a negative notation and will affect her score. I can not really tell you to what extent or how it would affect her in the future, that would be up to the invidual lender. If you are looking for a home loan or car she may be given a chance to explain and they may take the situation in to consideration for her (for both of these she would need to qualify on her income alone). Credit cards are normally 100% score based, a credit union could be an exception.

[Slingerland]

Thanks everybody! I was typing late last night and probably wasn't as clear as I wanted to be. Thanks for your patience!

A major objective is to keep my wife's credit from being harmed when I file C-13. And maybe that should be the title of the thread Here is some more data:

I understand about having to report the signature loan, I just didn't type clearly. One option is to report it on the forms, but pay it outside the plan. That was what I meant by "Option 1" above. But thinking about it overnight, "Option 2" seems to be the most appealing to me.

All the houses (personal residence and rentals) will be paid outside the C-13. They're not late, and the local trustee has no problem so long as they're not late. So I'm not sure how the houses would be reported on my wife's credit... I assume worst case is that they'll be marked "IIB" but there may be a possibility they're not marked at all.

We have three cars that are joint (hers, mine, son's) and I know they'll be marked "IIB". Two of the three are under the cramdown time... but I'm choosing not to cramdown the third car in order to protect my wife from being sued for the difference.

The rest of the debts... except the personal loan above... are separate. Student loans and credit cards. Where things get "interesting" will be what happens to her credit cards when I file my C-13. This is also what I'm interested in... what happens to her credit cards.

For example, pretend she has a credit card with Bank of America. I file my C-13 and the cars are marked "IIB". Will Bank of America see the notation and close her account? Will she suddenly find her Wal-Mart credit card closed when she tries to buy groceries? Will the elderly clerk at J.C. Penney look down her nose at my wife and sneer?

I know this is a hypothetical and each creditor will react differently, but it is something to think about. My wife is strongly opposed to being dragged into a bankruptcy, but she has no other solution.

(Not that I'm saying she has an ego problem... oh no... never... hasn't crossed my mind...)

Thanks, everybody!

[forgotten]

You can not propose to pay a unsecured debt outside the plan, only a secured debt. "Option 2" is really the only option that would protect the non-filing spouse.

The rentals may or may not be marked IIB on the report depending on the lender. I have a mortgage and they marked my mortgage as IIB and stopped reporting payments even though it had never been late and is being paid outside the plan (actually, it has always been paid 1 month in advance even). Technically the notation is correct however.

At the end of the day there is no way to fully protect her credit 100% if you have joint debts. She will not actually have the BK public record on her report but items can be marked IIB which will affect her credit (like I said, to what extent, it is hard to say). Her accounts probably will not get closed, but a creditor can close an account for any reason other than race, age, or religion.

I assume she has perfect credit, very little debt, and no problem making any of her bills?

[Slingerland]

You can not propose to pay a unsecured debt outside the plan, only a secured debt. "Option 2" is really the only option that would protect the non-filing spouse.

My attorney thought that we could, but I suspect he thinks I'm just an authorized user, not a co-signatory. This is an interesting twist... running the numbers through Best Case software, my payment would not go up, and my wife would save $200-ish a month.

This is the irony... by filing by myself, and since we have such a degree of separation in checking accounts, she will actually come out way ahead. I'll be taking on the car payment she currently makes (her car), all the payment on our son's car (she currently pays half), and now the signature loan.

I assume she has perfect credit, very little debt, and no problem making any of her bills?

Not really... perfect payment history but too much debt: paying off medical co-pays she put on her credit cards. She has a tight budget, but makes above minimum payments.

[ttg1]

I think there is an option three here that you are overlooking and that you should consider carefully.

Remove either yourself or your wife as a co-signer from as many loans as possible before filing your 13.

Remember, cosigners are there primarily to qualify you for a loan. While it is true that the removal of the cosigner can diminish the value of the loan a lot depends on how it's underwritten. Take your wife's signature loan. Have her go to the bank, explain the situation, and ask them to remove you as cosigner from the loan. If the payment has always been on time and the total value is not large, most banks will accommodate that. Remember, they are no more interested in the loan going into default (that shows up in their statistics) than you are.

I can't predict what kind of reaction you will get but if I were in your shoes I would give it a try if your goal is to protect her as much as possible.

[lrprn]

Remove either yourself or your wife as a co-signer from as many loans as possible before filing your 13.

Only one problem with option three - because this is done with the specific intent of hiding the loan from the trustee, deliberately removing the OP as a co-signer on any debt less than 12 months before filing could be considered bankruptcy fraud.

Ch 13 trustees can look back checking a filer's finances for a minimum of 12-24 months before filing depending on what is suspected. Honestly if the trustee believes that there has been an attempt to hide a loan like this one from the court by deliberately removing the OP as a co-signer within a minimum of 12 months before filing, the trustee can investigate any suspicious financial transaction, loan, etc. throughout the life of the 13 case (although it's very unlikely once the case is confirmed).

Even with the OP's name removed as co-signer and not listed on the filing papers, there's still a chance that this loan could be uncovered when the trustee's legal staff does an independent cross-check of the OP's financial records against what's on the filing forms. Many trustees will do an independent search around each Ch 13 filer's finances to see if any surprises turn up.

@Slingerland - talk with your lawyer before doing anything. Make it crystal clear that you are a co-signer, not an authorized user. Please let us know what advice you get, ok?