Equity in inherited house used to purchase primary residence

[HPCRY]

This is my second post, first one was in Chapter 7, now I'm thinking of Chapter 13. Will be meeting w/attorney next week.

I live in South Florida and inherited family home (paid for but not worth much) in North Florida (not homestead). My invalid sister is living in the house rent free. She has no income other an small SS that all goes to medicals. I'd like to take out an equity loan (under $100,000) and pay cash for a primary residence (homestead) for me in South Florida and still allow her to live in the house. That's the reason for Chapter 13, so I can keep north house.

My question is would the equity I took out of the North Florida home be subject to attack by the TTEE or creditors even though that money is tied up in a exempt property. Could the transaction be reversed and I lose both properties? If I had to pay creditors a % would it be based on the equity I took out, full value or current equity. (Not sure if I said that right)

I have approx. $260,000 in unsecured debts (my own short sale and credit cards) and would qualify for Chapter 7, but then I'd have to sell North residence or lose it.

Any comments would be appreciated.

[HHM]

Do you even "know" if you can get an equity loan. No point in speculating about something that may not be possible.

[HPCRY]

Fair point! I can get a co-signer if necessary, but I guess a call to the credit union would be in order. Hypothecially though, if I can would the equity I receive be subject to attack?

[HHM]

No Hypo's...

Given your circumstances, even with a co-signer, it is highly unlikely you can get the loan?

I am assuming your plan is this....
1. Get an equity loan against the inherited house.
2. You already know that you will not be able to eat up 100% of the value of the house with the loan (the bank will not lend that much) and there is no other exemption to cover remaining equity.
3. As such, you plan to reconcile...e.g. pay, the non-exempt portion of the equity of the inherited house through chapter 13.
4. You are going to use the equity loan to buy YOURSELF a primary residence, and hence exempt that residence.

To be honest, it is a grey area. So long as your case has NO OTHER flag raising issues, that transaction will probably pass muster, the bankruptcy court will not unwind the transaction. The issue is not so much the taking out of the loan, the problem you will have is getting the payment allowed as an expense. It is NOT YOUR home and it is a debt. The trustee will argue that payment of that loan is not "necessary" for the reorganization of your debts. However, as said above, if you have $260,000 in debt and a short sale, it is highly unlikely any bank will touch you even with a cosigner.

I don't think you will get the loan anyway, and even if you did, you will have a tough time in BK anyway because the loan payment will most likely not be allowed as an expense, so someone else will need to pay it...and do you have the disposable income to pay the reconciliation value. E.g. let's say the house is worth $100,000 and you are actually able to get a loan for $60K, You will need to pay $40K into the chapter 13 plan over 60 months, could you even do that. That payment would be somewhere north of $750 per month factoring in trustee fee and attorney fees (actually, probably closer to $850) just in the chapter 13.

I think you need to start thinking plan B...which, of course, is not very good. Plan B is finding a friendly buyer for the house and using the proceeds to buy yourself a house. Or, can you move into inherited house. If you could move in, that would make this a heck of a lot easier.

[HPCRY]

Great response. Moving in isn't an option and I really don't need to complicate my life any more than it already is. I won't qualify for an equity loan unless I live in the property and that isn't an option. Looks like I'll be selling in the near future and use the money to pay cash for another residence then file Chapter 7 instead. This forum is a blessing. Thanks.