Found out I am getting some cash, what can I do?

[signal]

i was planning on filing BK in March 2010. I just found out my company is merging and my options will be accelerated and paid out, which will land me $65k, plus I have $15 in IRS return and possibly a $10k bonus. The real issue is this 65k.

I don't want to just put it into my house, because my house is one of the biggest problems with my financial situation, its hugely upside down. I can't pay off debt with it because it will still leave me with this albatross of a house and too much debt to manage.

Are either of these valid things I can do?

1) try to negotiate with the bank either by going into foreclosure on my house or pre-foreclosure, in offering to put the $65k down as a payment on a more reasonable mortgage.

2) Just take the money, all the money i can get, and buy a small place for like $80k cash, or even 100k (owner finance maybe?) and then switch my homestead to this new place (can you do that?) and then proceed with BK.

Its the worst time to find out I will be getting money. Money is suppose to be 85% paid in the next few weeks. I have not filed yet, but I have already retained an attorney and paid him $2k of about $5k to get working on this. To summarize for those that dont recall, I have high income, a failing business (wifes business), lots of unsecured debt (>100k), and a house severely upside down (worth $180k, paid 427k, owe 360k)

just looking for advise. I would love to get a better mortgage, one more affordable, i called my bank and they said they would not readjust my mortgage, but if I go into foreclosure, maybe I can hire a foreclosure attorney and work with the bank to allow me to buy my place a even 10% over Fair Market Value AND put down $60k or so..........with my high income you would think that would be an attractive deal to a bank, of course my credit will be very bad by then, but I am just wondering if its a reasonable option.

Signal

[whipster1]

Depends on your exemptions. Maybe you can put the options in an IRA or other protected account before they are exercised...you need professional help on this one.

[signal]

State is florida. These will not be options. they are in fact frozen right now, and will be accelerated, meaning the company will take any options you have, pay out the price of the stock, subtract the option price, and give me a check. I have no decisions to make, a check will be coming my way. I have $15k in options, the price of the stock in the merger is $65k, so I will be getting $50k before taxes.

I did think about putting $5k in my IRA 2009, $5k 2010, then $5k for wife 2009, $5k wife 2010, and that would deal with $20k of the money. $50 after taxes is maybe 40k or so, so that's half the money, but I need bigger plans than that, as I have a $12k give or take tax return coming and potentially a bonus.

Who are the best people to consult on these matters? I mean I have a BK attorney and I just found all this out yesterday and I will be consulting my attorney, but aren't there attorneys who are experts in estate/asset planning, who know all the ways in which money can be protected? Would that be better in this type of scenario?

[music12]

your bk attorney will either know the answer or refer you to another attorney, or talk to anotehr attorney to get you an answer.

can you put anything in a 401(k)?

possibly a child's college account (529 i think) might be exempt too, i am not sure. that's only if you have a child, that is! or a nephew? or maybe not, that could be preferential.

[backtoschool]

It is going to be difficult to exempt that $50k. If you put it into a 529 you have to wait a year for it to be exempt. Anything put into a 529 plan within a year of filing is not exempt.

Only direct roll-overs into 401k's are guaranteed to be fully exempt. Technically, you could probably get away with putting $10k of it into an IRA, ($5k for you and your wife) but that will definitely be a huge red flag for the trustee, who will start giving you a proctology exam when he sees the "sheltered" 10k deposit to your ira.

Are you walking away from your house? In Florida, you could certainly put the money into the house as long as you have lived there for a couple of years and it is considered your homestead.

[signal]

I bought my house for $425k, I owe $360k and its worth maybe $200k at best. So putting $50k into it would be a bit foolish. If I could use the money to entice the bank to readjust my mortgage perhaps that would work.

I am concerned though because I hear about some trustees maybe taking issue with money used to pay down mortgages within 40 months of a bk.

There is a section of this article:

http://www.netside.net/~c3i/bankruptcy.htm

"Conversion of non-exempt into exempt property" that is interesting. But I am not sure if this reflects the general opinion of courts today. To summarize, the article states that it is permissible to move non-exempt (cash) into exempt property, and its even in the debtors best interest. In order to take issue, the court has to show that the debtor intended to defraud the creditors, and it tries to paint the case that that is not what is happening.

[ToughSpot]

My guess is the options are an asset if they are in the money. So even the merger were not happening you would have to claim them and the trustee would take them.

You could put some into your house. Then 1/3 will got to taxes and depending where you are you may be able to exempt close to the final 1/3.

[signal]

putting any of the money into my house would not be wise, unless my bank refi's me. My house is severely upside-down, and in fact much of the motivation towards BK.

I would gladly buy a small new house cash, but i worry about how that may be received. In florida, I am exempt on homestead anywhere from 137k to unlimited, so putting 50-100k into a new house is exempt if its my homestead, but I worry about objections to moving cash on the eve (in this case 12 months or so) of BK.

What are the ramifications of filing immediately? There is no merger YET, and in fact it may not happen, its not a done deal. So i wonder if early filing may be helpful to me.

yes you could say options are an asset, but I would argue its not an asset reachable by the trustee, because these are restricted options in a private company, which have no value until they are exercised, and are only exercisable by myself as they are restricted. I am not sure how that all works.

[justbroke]

What the OP needs is a qualified asset protection attorney (and/or bankruptcy attorney) to review what options you have. The big thing will be getting the money into an exempt asset.

Everything stated here are all different options and things to do, but you want to do this so that any subsequent bankruptcy doesn't cause what you've done to be avoided by the Trustee.

Get competent advice... today.