Attorney advised buying a home pre-filing

[nozar]

I have non-exempt cash. While interviewing multiple BK attorneys, one with 100+ stars on Avvo advised me to use that cash as a down-payment for a home before filing. I replied that I thought this was not allowed? He said people bought homes even 4-5 months before filing and that was fine.

Later I found this from NOLO: “In an attempt to prevent people from shielding their assets by moving to and buying a house in a state with an unlimited homestead exemption, federal law places restrictions on the homestead exemption. In order to take advantage of a state’s homestead exemption, you must have purchased your home at least 40 months before the bankruptcy”.

What gives?

[justbroke]

This is just too interesting and I'm sure despritfreya is as perplexed as I am about these different schemes to divorce the bankruptcy estate of cash. What happens if the Trustee seeks to cancel the sales contract? (The Trustee steps into your shoes and become you for purposes of any property of the bankruptcy estate.) Is there a specific exemption for "down payments" for a home? Unless that transaction is closed (the sale is completed), is the transaction at risk? Should the Trustee just keep the case open for the sale to complete and then go after the equity?

So let's say you put $100,000 down and actually close pre-filing. Guess what? California's System 1 and System 2 exemption schemes will not protect all that money and there would likely be a forced sale, as any smart Chapter 7 Trustee will keep the case open.

The restriction on the unlimited homestead exemption just makes it so that only about $160K within the first 40 months. Remember Bernie Madoff? He went and bought Florida property to protect it. This is the reason for the law. To "partially" prevent people from denying creditors the ability to recoup their lawsuits through property foreclosure. This is why a lot of professional sports people from New England have massive homes and maintain Florida as their state of residency. Their home can never be involuntarily taken. (Texas and a few other states also have unlimited homestead exemptions.)

If you have so much cash... why not go the settlement route? I just don't understand.

[flashoflight]

nozar I can't reply to you privately. justbroke or another mod needs to enable private messaging for you or whatever it's called.

[justbroke]

nozar private messaging is enabled after 5-10 posts on the forum. We don't override that setting.

[nozar]

If you have so much cash... why not go the settlement route? I just don't understand.

I don't have that much cash; less that 25% of the amount of my debts.

I tried calling creditors to settle, but they refused, saying that if I stop paying for 3 months, my loan be sent to a collection agency or a litigation attorney. I don't want to drag things on like that with 5+ creditors for months.

Also, settling involves paying tax on the difference, which would leave me worse than penniless.

[nozar]

nozar private messaging is enabled after 5-10 posts on the forum. We don't override that setting.

I had over 5 messages at the moment, so I guess it must be 10+? Let's see, this one should bring me to 10.

[nozar]

Following up on this - another CA-based BK attorney (the one I retained and who advised pre-paying rent), also said

• I could buy a home and have it fully exempt from the Chapter 7 estate
• the 1,215 days of home ownership is a federal restriction they had never had a problem with
• but if the house is not in California and I declare it as my primary residence, I'd have to file bankruptcy in the state where the house is in. My CA attorney kinda dropped the ball at this point.

So yay - I can put most of my cash into a decent condo under $80k in Florida, where justbroke is, file in Florida, then after discharge, sell it and move on with my life?! Not so fast, I'd need to have been residing in Florida for 2 years before the date of filing *to use Florida exemptions*. But I want to use California exemptions. What then?

Re. living in more than one state, I lived in California for the majority of the 180 days prior to the 2 years before filing, if I file next year.

What if the house is outside of the US? I could reasonably return to my home country and get a property there. Or in some other inexpensive country.

(Why I have so much cash after almost filing in CA is because while having my back taxes done, it turns out I'm due a lot in refunds. Had I known this back in April, I wouldn't have even considered filing, but it's too late now - I stopped paying my creditors several months ago, and they stopped calling me once I asked them to call my BK attorney. My credit score has been in the 400s. Nice limbo, I guess? Or will it come crashing down when I get sued?)

This is all getting really complicated, and it seems like I'd need to find another BK attorney, with experience in both CA and FL, after I've already shelled out $2k for my CA attorney

[flashoflight]

$80k isn't really enough to buy a house without access to a mortgage. If you had a lot more cash, you could use California's 2021 newly expanded homestead exemption to buy a decent house with an all-cash deal. If you had less cash, it'd be easier to convert to other exempt assets. I'd start looking for a simple solution that doesn't involve moving out of state and might suggest a manufactured home in Southern California. You are going to take a big loss when you sell the home, but it's less than giving it to the creditors. Maybe try to buy as cheap as possible for the manufactured home and convert the remaining cash to exempt assets although at 80k there isn't much more room going down.

[justbroke]

A change of venue certainly complicates things, but doesn't remove the ability to file. In some cases, you'll be able to use Federal Exemptions, but venue planning and which exemption scheme to use are significant legal questions. If you get it wrong, then you end up right back at where you started, but you would have filed at that point! There's nothing magic that I can tell you.

The 1,215 day rule is related to unlimited homestead exemptions only and caps them at a certain amount. That is why it doesn't matter for your $80K, but it does matter and is a real thing. It was specifically to prevent someone with millions from buying a home in Florida the day before filing bankruptcy. It helps to prevent venue-shopping.

What you're trying to do is venue-shopping. You're going to spend $$$ in consulting fees trying to determine where to file and how the exemptions are going to work. I can't help you with that as this is real money at stake and the legal questions (on exemptions, venue, jurisdiction) all come into play if you're going to move.

Seems like a lot of work.

[nozar]

Thanks for the replies again. The SoCal manufactured home idea is quite interesting, I see some like this.

Re. $80k not being enough, I did link to Florida condos listed for quite a bit less than that, and there are many decent-looking homes in the $65k-$80k range in South Florida. I could also loan $20k from friends, but I'm sure there are closing and other costs I'm not aware of. I've never bought a home, and I would want to sell it after the discharge.

Re. converting to other assets if I have less cash - what would those be? There's only so much you can plunk down in furniture and appliances and OLED TVs. Maybe buy a houseboat or an RV as a home? Apparently an RV would qualify if it's the primary residence of the filer, and there's a Florida precedent.

Re. changing the venue - I haven't filed anywhere yet, so no need to change anything? I'd only consider California for the ~$30k wildcard exemption, and Florida because I've been living in the state for a month now and I can buy a decent home here for under $100k.

I agree this is a lot of work, and at this point I'd be happy to pay some consulting fee to someone who can actually clarify all these things for me (to the extent to which there are any clear answers). I just don't really know where to find that bankruptcy pre-planning professional with both CA and FL experience.

[flashoflight]

I didn't know you moved to Florida already. It appears you will use California exemptions (specifically 704 with the big homestead) rather than Florida since you just moved there. Just buy whatever you can get above manufactured home quality in Florida. If there is anything left over, ideally get a job so you are eligible to move money from cash to an IRA/401k. Your condo probably needs a washer, dryer, and refrigerator. Because you are using California exemptions, you need a $3k junker car (in Cali, this actually means buy a 4.5k vehicle and it will depreciate down below the exemption) which is a lot better than Florida's car exemption. After Jan 1, 2021, you can exempt $1.7k right away in cash and maybe more. 704.225 gives an unemployed person a potential windfall, but this is all uncharted territory and risky especially outside of California.

[despritfreya]

I agree this is a lot of work, and at this point I'd be happy to pay some consulting fee to someone who can actually clarify all these things for me (to the extent to which there are any clear answers). I just don't really know where to find that bankruptcy pre-planning professional with both CA and FL experience.

Instead of seeking assistance from strangers off the Internet, you talk to and hire a California attny if you are filing in California or a Florida attorney if you have lived in Florida for more than the better part of 180 days and, are therefore filing in Florida.

Between your two threads you are all over the place. If you file without the assistance of good, competent counsel you are not going to like the outcome of your case.

Des.

[justbroke]

As despritfreya writes, you really need local counsel. Whether or not you can claim homestead exemption, as a non-resident is a major issue which could push you to a different exemption scheme. That is why I will continue to suggest that you need more than mere suggestions from us here. We can opine all day, but it's your money and there are real issues.

[nozar]

I fully agree, and as I mentioned before, I have retained local counsel in CA, which would be my venue. Problem is my counsel gave me some advice that sounded too good to be true ("this sounds bad", to quote justbroke), and you guys have correctly explained that it's just advice.

The latest example is they suggested filing Chapter 13 instead of 7, and when I asked what the downsides were, they said "You'll have to pay a couple hundred bucks a month". That'd be great, but then I read on the National Bankruptcy Forum that,

Chapter 13 plans last between 3-5 years. During that entire time, the debtor is obligated to commit all of their disposable income to the payment plan. Every penny after expenses must go toward paying back unsecured creditors. This is a big commitment that lasts quite awhile.

So I've been taking every opinion, including these and my lawyer's, with a grain of salt. I'm obviously not looking for legally-binding advice on an Internet forum, and won't be acting solely on it. Maybe I should've put that disclaimer at the beginning of each of my threads, but I thought it's a given. Perhaps I've been on forums for too long.

Anyway, I'm very grateful for everyone's suggestions here. They've been helping me make a decision based on likely odds, clarify aspects of law, learn when online resources aren't that reliable, and avoid clear traps. Thank you guys.

[justbroke]

A Chapter 13 is another can of worms. If you have $100,000 in non-exempt cash laying around, then you'd have to pay (the unsecured creditors) $100,000 over the life of the Chapter 13. That's way over $1,500/month, alone, in a 60-month plan. That's thanks to the Chapter 7 liquidation test (best interest of creditors test), but could be lower than $100K if you owe less than 100K.