Using HELOC before filing?

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We have some state and federal taxes that will come due in June (quarterly payments) and additionally will undoubtedly have some 2009 taxes still owing (we filed an extension so have not officially filed yet). My husband wants to use some of our HELOC to pay these. Is that bad?

There's a 2-fold reason for this - one, they need paid. Two, using a bit of the HELOC available will reduce any house equity in my Chapter 7. I know that sounds bad, right? But he would not be using the HELOC for anything like a TV or vacation, and in any case I would not be seeking to discharge that, as we are keeping the house.

??

[keptdigging]

Borrowing money to pay non-dischargeable taxes creates non-dischargeabie debt. But it sounds like you have equity and don't care if your heloc is discharged.

As for reducing your equity... I know there are rules negating this as a strategy for purchasing exempt assets (you'll lose exemption in your home dollar for dollar.) Not sure of the effect paying taxes when due however.

If you're talking about paying quarterly estimated income tax payments, the penalties of not paying them is basically just interest. Still you gotta pay next April.

My gut feeling is that i'd try it... don't see how you can be made worse off ASSUMING your intent it to pay your heloc as agreed after filing. I'd be prepared for the contingency that the reduction in equity might get challenged.


But I probably shouldn't have chimed in when this is one of those "attorney or guru" questions.

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Well, I'm not so sure if I have too much equity, or if I have a nervous husband.

I have been doing some research on the trustee here. He is the municipal judge and can be somewhat....challenging. I was looking at the required documents list (for the 341), and it would seem he goes off assessed value for the house, based on these:

Real property tax statements for all parcels of real estate in which the debtor has any interest, including equitable

If the debtors own their home or have any interest (of any kind) in any real estate, they should bring the latest tax statement with the assessed and current real property values of the property. Also provide copies of any other valuation for the property including appraisals or realtor market assessment of value and copies of any listing agreement if the property has been listed for sale within the year prior to the filing.

Assessed is 116,950
1st 52,500 bal
HELOC 15,900 bal
==============
48,550 "equity"

My husband is an appraiser and believes it would sell for more like $100k - but as for how to arrive at that figure so that it's accepted, I don't know. Oregon homestead exemption is $40k single/$50k married. It was explained to me last night (in the Exemptions forum) by HHM that:

I can't speak to Oregon specifically, but homestead exemptions, in general, attach to the property, not the owners.

Thus, your TOTAL exemption is $50,000.

I asked: So you're saying regardless of any splitting scenario, $50k is exempted?

Reply: Correct, for "bankruptcy" purposes, the exemption is the total. Granted, on your petition, YOU cannot claim the full amount, but you husband is entitled to his half. The net result, the entire $50K is exempt.

I don't get that though.

The house/HELOC will not be included in the BK - we are current and plan to stay that way. But if we use the HELOC for taxes, that will take away just a little bit of the $48550, which would help my husband breathe easier.

Oh, another thing that is making him nervous is this bit of info about the trustee, from 2008. This is concerning Chapter 13 BKs, but I wonder if it sets a precedent about how he "is", KWIM?

Rxxxx Rxxxx had only 20 completed cases during this period and, with such a small sample size, comparisons to the other two trustees are not very meaningful. However it is worth noting that of those 20 cases 65% were 70+% distributions, much higher than the national average and the other two trustees. And there were no 0% cases, in contrast to a 6.5% national average and 23.0% and 30.0%, significant portions of the total, for Lxxxx & Lxxxx, respectively.

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My gut feeling is that i'd try it... don't see how you can be made worse off ASSUMING your intent it to pay your heloc as agreed after filing. I'd be prepared for the contingency that the reduction in equity might get challenged.

That is absolutely my/our intent.

Don't know if it matters, but we don't have the cash to pay taxes, so it's not a matter of having the cash but seeking an alternative to benefit the BK -- it's a matter of "they need paid".

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Just wondering if anyone else has an opinion today :-)