Tenancy By Entirety and BK filing, home owned outright.

[mysticspirit25]

I have a relative who is filing a chapter 7 due to recent job loss and overwhelming cc debt. Problem is, he and his wife own their property outright, worth about 400k. Was purchased when times were good, and they used savings to purchase about a year ago.

Things went downhill very fast. He is not filing until the lawsuits start to pour in. He cannot get a HELOC because of job loss, otherwise he would get one to pay back creditors, so a 7 looks like the only answer.

Now in NC (where they are), the home is protected as tenancy by entirety, totally exempt. However in searching the web on this I found this passage...

You can exempt only up to $136,875 of your home's equity, regardless of the state allowance, if the home was acquired less than 40 months before filing or if you have violated securities laws or been found guilty of certain criminal conduc taken from http://www.consumer-action.org/engli...l_fresh_start/

So which is it, all the equity (only one spouse filing and no debts are cosigned by non-filing spouse), or only $136k?? That is protected??

[justbroke]

Do not confuse the TBE exemption from the homestead exemption as they are different things. Whether it is protected by a TBE exemption will be whether they have joint debt. A TBE exemption protects a debtor's property from being used to pay creditors if the creditor is solely a creditor of the debtor. I think you already understand that part.

You can exempt only up to $136,875 of your home's equity, regardless of the state allowance...

There is a time limit for the maximum exemption you can use. The time limit is basically that you need to have owned the home for 1,215 days (about 40 months) in order for the Federal cap to no longer apply (or that the home was purchased with proceeds from a home in the same State, that would keep meet the 1,215 day time limit).

So, if they purchased it a year ago (365 days ago), using "savings"... then they are capped at the $136K Federal limit on homestead protection. They are lucky that it's a TBE, as the North Carolina homestead exemption is pathetic without it.

Your relative should seek competent legal advice on this matter.

[JRScott]

justbroke summed it up good, if its western district I might could suggest a lawyer, if interested PM me.

[HHM]

I concur, TBE and homestead are different things. TBE is a way of "owning" property that naturally provides protection from creditors due to the nature of the ownership; in that sense, TBE is not an exemption, you merely own the property in such a way that no creditor can get at it. The Homestead exemption covers the other types of ownership. The homestead exemption is a direct law that protects a certain amount of equity a persons primary residence.

But here is the possible rub... fraudulent conveyance. If your relative owed money to creditors at the time he purchased the home, or the transaction (using savings to buy the home) created insolvency, the bankruptcy could undo the real estate transaction and remove the protection.

[mysticspirit25]

Do not confuse the TBE exemption from the homestead exemption as they are different things. Whether it is protected by a TBE exemption will be whether they have joint debt. A TBE exemption protects a debtor's property from being used to pay creditors if the creditor is solely a creditor of the debtor. I think you already understand that part.

There is a time limit for the maximum exemption you can use. The time limit is basically that you need to have owned the home for 1,215 days (about 40 months) in order for the Federal cap to no longer apply (or that the home was purchased with proceeds from a home in the same State, that would keep meet the 1,215 day time limit).

So, if they purchased it a year ago (365 days ago), using "savings"... then they are capped at the $136K Federal limit on homestead protection. They are lucky that it's a TBE, as the North Carolina homestead exemption is pathetic without it.

Your relative should seek competent legal advice on this matter.

I did understand the basics of TBE but now I am confused, how can the TBE be used to protect from one spouses debts if the house is worth 400k, and the cap is 136k, then the TT can sell property to pay creditors, even though they are not from the non-filing spouse. More confused than when I posted.

[mysticspirit25]

I concur, TBE and homestead are different things. TBE is a way of "owning" property that naturally provides protection from creditors due to the nature of the ownership; in that sense, TBE is not an exemption, you merely own the property in such a way that no creditor can get at it. The Homestead exemption covers the other types of ownership. The homestead exemption is a direct law that protects a certain amount of equity a persons primary residence.

But here is the possible rub... fraudulent conveyance. If your relative owed money to creditors at the time he purchased the home, or the transaction (using savings to buy the home) credit insolvency, the bankruptcy could undo the real estate transaction and remove the protection.

Never thought about the fraudulent convey issue. I guess time would be my relatives best friend. But you can only stay lawsuits for so long, maybe a year, year and a half if you are lucky, before they get judgments, and then...well the liens come, and they cannot be removed in a 7. Any possible way to avoid liens for the next 30 months? Also, does the 40 month rule only apply if you are establishing homestead in that state, they have lived in NC for 30 years+ and kept "buying upwards" using proceeds from one home to get a bigger one, and finally just used all accumulated savings and profits from home sales (profits which were reported to IRS), to pay cash, and be done with a mortgage payment.

[justbroke]

I did understand the basics of TBE but now I am confused, how can the TBE be used to protect from one spouses debts if the house is worth 400k, and the cap is 136k, then the TT can sell property to pay creditors, even though they are not from the non-filing spouse. More confused than when I posted.

Let's just ignore TBE for the moment and talk just about homestead exemptions and the Federal cap. In Florida, we enjoy an unlimited homestead exemption. As part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, Congress chose to try to put limits on these high homestead exemptions in favor of creditors. Remember that the Bankruptcy Code is really an intersection between Title 11 of the United States Code (USC) and underlying State bankruptcy and non-bankruptcy laws.

This limit basically overrides the underlying State laws. So, if you have an unlimited exemption (including TBE), then the Federal "cap" applies if the home was purchased less than 40 months prior to filing. It's that simple. If your relatives purchased the home over 40 months ago, we wouldn't be having this conversation about the Federal cap.

Also, does the 40 month rule only apply if you are establishing homestead in that state, they have lived in NC for 30 years+ and kept "buying upwards" using proceeds from one home to get a bigger one, and finally just used all accumulated savings and profits from home sales (profits which were reported to IRS), to pay cash, and be done with a mortgage payment.

Yes. I eluded to this, in passing, in my first response. If you were a homeowner and used proceeds from one home to buy another, and it's more than 40 months, then you can claim that part of the homes purchase price was from proceeds of another. However, it sounds as if they used money from savings in order to purchase the home. That amount would be exposed. I have never dealt with this TBE issue personally, so that's why I suggest a really good attorney who understands TBE exemptions and how to apply "partially" exempt value.

[mysticspirit25]

well, I will advise relatives of such, I think maybe 100k was "rolled" into the new home from sale from previous home. Since they obviously cannot file bk for over 2 years, how can you stall liens and such for such a long period of time? Would it be legal (considering there are no current lawsuits) to transfer the home to somebody else that way there could never be a lien against the home (and just never file BK) I don't know if there are laws which consider that fraudulent or not?

[justbroke]

well, I will advise relatives of such, I think maybe 100k was "rolled" into the new home from sale from previous home. Since they obviously cannot file bk for over 2 years, how can you stall liens and such for such a long period of time?

Fight the lawsuits, but eventually they'll probably win.

Would it be legal (considering there are no current lawsuits) to transfer the home to somebody else that way there could never be a lien against the home (and just never file BK) I don't know if there are laws which consider that fraudulent or not?

That's a fraudulent conveyance inside the Bankruptcy context. Most States have non-bankruptcy laws dealing with the movement of assets to hinder, delay or defraud creditors as well.