New to Bankruptcy, Question

[crynow]

My question relates to IF and WHEN an individual can file for Chap 7 given the following circumstance.

Individual has $500k in the bank. Individual also has close to $3mil in debt from a mortgaged property. Currently, monthly income falls below monthly expenses.

Is it still possible to file Chap 7, lose the home and keep the money in the bank?

Thank you.

[juststupid]

$500k in the bank? If you file I doubt you will be able you keep that money. But I don't know enough to tell you for sure, but heck we got $10k from my husbands reenlistment bonus and were told to spend it before we filed because the Trustee would take it. SO if they would take $10k than they would take $500k

[DeadManCrawling]

Why not let the property go into foreclosure without filing?

Seems like this would protect the money in the back and get you out of the mortgage.

If this is the only issue, and there are not other unsecured debts, you might consider this. It would buy you time to place the 500k into exempt assets, such as 401(k) and so forth. Doing so, though, would mean you woud not want to file for probably 5 years or so, if BK was still a pressing issue.

Would leaving the property to foreclosure change your circumstances so that bk wasn't required?

You would still take a hell of a hit on credit scores, but keep the money, in all likelihood.

Is this your primary residence, and homesteaded, or is it an investment or business property?

Also, what state are you in?

[lrprn]

Is it still possible to file Chap 7, lose the home and keep the money in the bank?

Going on the very limited information you've given us, no - I don't believe it's possible to file Ch 7 and keep $500K in personal funds. Of course, I'm not a lawyer. Very rarely depending on the state your friend is in and adding in some "lawyer magic", stranger things have happened. What state is your friend in? Has he/she had any free consultations with 3-4 bankruptcy lawyers in the area yet? That's the most reliable way to find out what the options are in these unusual circumstances.

I can say for certain that if your friend ever does file bankruptcy with this amount of debt owed, then the case will catch the intense interest of not only the local trustee but the U.S. trustee as well. He/she needs to get ready to be asked for *years* of documentation!

[JRScott]

Like the others said, 3 million in debt is going to be looked at real closely. You need to gather up the last 3 years worth of relevent information to start with. I mean taxes, payroll statements, bank statements, credit card statements, etc. This is gonna raise a huge flag. You don't need 3 years to fill out the paperwork but I suspect they'll go back at least 3 years on such a case and possibly as much as 5.

I seriously doubt you can keep the 500k, I assume the 500k is not sufficient to get you current?

[HHM]

BK is really not the answer to your situation. Again, based on the limited info you provided, your issue is a Property Issue and BK only gives you a very limited remedy in that regard. If I had to guess, it sounds like you cannot afford the property, and it's likely that the value of the property is less than the balance due on the mortgages. You could try a Mortgage Workout Agreement, or simply let the house go in foreclosure (but before letting the house go in foreclosure, you need to determine if your state allows deficiency balances to be collected, most states don't).

Regarding the cash...that is too difficult a question to answer because we don't have enough information. But in a nutshell, if the cash is in non-exempt assets (i.e. non-retirement investment vehicles), then it will be fair game.

[CindyLou]

If you live in a state such as Texas, then you could actually take that 500,000 and buy a house with Cash. then you could file chapter 7 on the other property and the new primary property would be exempt. then after the chapter 7 you could sell the house. But thats only in a few states where the homestead is unlimited. If you give us more info we can help. (Im not an attorney...I would suggest seeing an attorney for a free consultation.) There is nothing illegal about BK planning, so get prepared!

[SinkingFast]

Actually,............. The Unlimited Homestead exemptions are limited under New Law. You have to own the property for something like 1215 days to get the Unlimited Exemption allowed in those States.

The New Law was written so people in financial distress would not flee to a debtor friendly State, invest in property to protect cash assets, and then file BK.

[CindyLou]

I was confused. I thought you had to live in the state where you were filing for x number of days in order to qualify for the exemption. I didn't realize it was property specific if you were a resident of that state for the required number of days.....

[SinkingFast]

I did a quick search and didn't access The Code.

The residency rule is 730 days to claim Exemptions in a given State. Property is:

The exemption for a homestead is limited to $125,000 if the property was acquired within the previous 1215 day (3.3 years). The cap is not applicable to any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period)

http://www.bankruptcyaction.com/bank...exemptions.htm

As I read that statement,............. If you bought a house less than 1215 days prior to filing and invested proceeds from the sale of a previous house into your current residence, then the Limit could exceed $125K.

Actually, I think the new number is $137,500 now. There were some increases effective April 1, 2007, and the Homestead Exemption Limit was one that increased.