Parents don't Believe ch. 7 is for them-I'm not so sure.

[AbeVigoda]

Hello,

I would thank any in advance for advice on this. I've recently become aware of my parents' difficult financial situation. They can't grasp that BK may be a reasonable option for them. Can someone give me an educated opinion(s) on this?
This is AZ I'm talking about. Here's the deal in a nutshell:

Dad 78 yo/Mom 72 yo

House on mkt. for 525k (owe 473K orig. and second mortgage)
Mortgage pymts combined (3100.00/mo)


CC debt of 52 k (1600.00/mo payments)

current income (dividends + SS)- 4350.00/mo
Projected Budgeted expenses - 4500./mo after paying off CC debt.
Though currently they spend about 6300/mo.

Big thing is protecting approx. 125k in securities from which they make
dividends (and he doesn't want to lose that obviously). That's all he's
got and he sells some each month.

I'm very interested in Ch. 7 for them and in particular the AZ 150k homestead exemption as a way to hang on to what they have left. I think any other conveyance
of what they have wouldn't work at this point, right?

Question 1: Based on this snapshot, do they look like they should strongly consider ch. 7BK?
Question 2: How would it work to convert their 125k in securities into equity in their
House. (It's been on the mkt. and they will not try to keep it).

Thanks very much for any advice concerning this matter.

AV

[debee]

Are their securities held in a brokerage account or an ERISA-qualified retirement plan? If the latter, they would be exempt.

Arizona is a non-recourse state, isn't it? How big is the HELOC? If it isn't substantial and if their securities account isn't exempt, maybe they could pay it off and let the house go into foreclosure. That would leave the credit card debt - you mention "paying it off" in your post.

I have also read of cases where it's possible to get out of the recourse aspect of a HELOC if the HELOC lender initiates foreclosure. Might be worth researching to see if there's something to it.

From what I understand, moving money from a non-exempt asset (brokerage account) into an exempt asset (like a house) is a "fraudulent conveyance" and with the sums you're talking about, I don't know that they would be able to pull it off without raising enormous red flags with the trustee. What's more, if they put the money into their house, they would not be able to draw on it.

[AbeVigoda]

HELOC is about 69k. Securities are not in any kind of IRA unfortunately . I'll have to check on "non-Recourse" state issue. I'll definitely check with an AZ lawyer, but I'm not sure converting the securities
would be considered a fraudulent conveyance. As to drawing on it, I think if they filed, they'd probably simply want to foreclose, yes? Then they can retain up to 150 k in equity once the house is sold?
This is where it gets a bit fuzzy for me-these are all things I've never had occasion to deal with.

Thanks very much for your reply.

[debee]

Moving a non-exempt asset (cash) into an exempt asset (house) is trouble no matter what you call it. The money could be used to pay the creditors. Moving it into exempt property is an attempt to prevent that from happening.

"There are two kinds of fraudulent transfer. The archetypal example is the intentional fraudulent transfer. This is a transfer of property made by a debtor with intent to defraud, hinder, or delay his or her creditors." <--- Wikipedia quote.

Unless there was a huge gap in time between the transfer and the filing, it wouldn't just be a red flag. It would be a screaming, jumping up & down, blowing raspberries kind of flag.

[AbeVigoda]

Thanks. This thread had given me some hope that this would be a legal and legit method of hanging on to something:

(guess I can't post links yet, but it was in the "exemptions" thread under AZ exemptions)

I'll continue to check it out and will certainly consult with a bankruptcy lawyer.

Thanks

[debee]

Here's something I copied from Cathy Moran's website:

"If you have significant non exempt assets, get good bankruptcy counsel about converting non exempt value into exempt value.

Courts are variable about what constitutes good bankruptcy planning versus what is a scheme to "hinder, delay or defraud creditors". Maximizing exemptions is traditionally permissible; hindering your creditors is grounds for denial of discharge.

I submit that these are but two ends of a continuum and drawing any lines along that continuum is art, not science.

If your assets exceed the exemptions available in your state, bankruptcy counsel can evaluate the extent to which those assets can be consumed or converted to exempt assets within the tolerances of the local judges."

Maybe a free legal consultation would help your parents understand their options.

[tobee43]

Hello,

I would thank any in advance for advice on this. I've recently become aware of my parents' difficult financial situation. They can't grasp that BK may be a reasonable option for them. Can someone give me an educated opinion(s) on this?
This is AZ I'm talking about. Here's the deal in a nutshell:

Dad 78 yo/Mom 72 yo

House on mkt. for 525k (owe 473K orig. and second mortgage)
Mortgage pymts combined (3100.00/mo)


CC debt of 52 k (1600.00/mo payments)

current income (dividends + SS)- 4350.00/mo
Projected Budgeted expenses - 4500./mo after paying off CC debt.
Though currently they spend about 6300/mo.

Big thing is protecting approx. 125k in securities from which they make
dividends (and he doesn't want to lose that obviously). That's all he's
got and he sells some each month.

I'm very interested in Ch. 7 for them and in particular the AZ 150k homestead exemption as a way to hang on to what they have left. I think any other conveyance
of what they have wouldn't work at this point, right?

Question 1: Based on this snapshot, do they look like they should strongly consider ch. 7BK?
Question 2: How would it work to convert their 125k in securities into equity in their
House. (It's been on the mkt. and they will not try to keep it).

Thanks very much for any advice concerning this matter.

AV

actually this situation would take much planning ahead....

i would liquidate all assets.....otherwise the courts will take it all. depending on your parent's district that they are filing the question will in some cases be within 1 year or in our case within 2 years of filing did you...blah blah....

we had to wait over 2 years to file. just to be able to answer no to a few of the questions. i know that seems like a long time....but if they do not want to lose everything they will plan this very carefully.

[AbeVigoda]

Thanks, tobee43.

I think that even if filing right now isn't in the cards, that planning as though you will file at some time in the future is imperative. i.e. annuities, medicaid trusts, life insurance IRAs.
So the most crushing thing here is the mortgage payment. If you don't think filing is feasible currently (given the stock portfolio), is a short sale on the house the only way to try to
get out from under that mortgage payment?

[tobee43]

Thanks, tobee43.

I think that even if filing right now isn't in the cards, that planning as though you will file at some time in the future is imperative. i.e. annuities, medicaid trusts, life insurance IRAs.
So the most crushing thing here is the mortgage payment. If you don't think filing is feasible currently (given the stock portfolio), is a short sale on the house the only way to try to
get out from under that mortgage payment?

well...what we did was went through the motion of the loan modification....it took months on end. now...we went for help to the bank, however, they said we cannot help you unless you are at least 3 months behind...in shock i said i can't do that ...in over 30 years we have never ever been late...however, i did as i was told. went face to face with a loan mod person from the bank....it took months upon months upon months.....i called weekly...and it began to become clear to us....we need to give up the house. it was way to large for us to keep up as we were getting older...the upkeep cost were out of hand....so i went through the..."but i raised the kids here" all of it...the guilt the grief..all of it again and again....and still no word from the bank.

it was a SOUND business decision to let the house go...careful planning and making the move. as we were awaiting the loan mod answer one of us lost our job...i called in to our loan mod officer and re applied...he said sadly...we would not make HAMP but he would put it in anyway, but wait to hear from him...sure....we heard from chase alright...with a summons of foreclosure.

it's been well over 2 years...we vacated the premises and stopped paying and put the money into the move. we retained an atty...he had advised lock the house and leave it..go to somewhere warm...we did.

we waited out time out....found a nice small place to be happy and finally filed...legally and the right way....

there is no such thing as a "short" sale...LOL!!!! sure the banks say and we hear all about them....just try to do it or buy one...

just leave the mortgage...and claim in the bankruptcy. surrender the house....do not reaffirm. they could most likely live in the house for 2 years depending on the district i would check on the area to see how it's going.

what my daughter did was hold an existing mortgage...people unable to get a mortgage themselves because of the credit crunch she's holding it herself with the premise the people are to have 18 months to get mortgage..they had to come up with a down payment of 6 months in advance. that way she had the money to pay the mortgage and not lose the house when she made her move. so there are all different ways to do it.

your parents are most likely more like us...set in our ways never late in 40 years and just a statistic of the times. we never miss managed our money...never charged luxury items...just illness and job loss...the combo was lethal for us.

plan carefully and smart...save them from losing it all. you can.

best of luck...you have much on your plate but can do it.

[tobee43]

oh...and of course they haven't even foreclosed yet....

[tobee43]

Thanks. This thread had given me some hope that this would be a legal and legit method of hanging on to something:

(guess I can't post links yet, but it was in the "exemptions" thread under AZ exemptions)

I'll continue to check it out and will certainly consult with a bankruptcy lawyer.

Thanks

best of luck abe...and remember were there is a will there is most certainly a LEGAL way!!

keep in touch and let us know how you're doing!

[debee]

One of the forms your parents will have to fill out when/if they file ch7 is a "Statement of Financial Affairs". Question #10 asks them about property transfers, including all property transferred to a self-settled trust within the ten years immediately preceding the filing. I believe a Medicaid trust is a self-settled trust.

You can get a copy of the forms here: http://www.uscourts.gov/FormsAndFees...ptcyForms.aspx

Az exemptions here: https://www.azb.uscourts.gov/Documen...exemptions.pdf

The annuity & cash value of life insurance is listed exempt if they've been in place two years except for the amount of any premium that is avoidable by a creditor as a fraudulent transfer.

[debee]

Was their second mortgage used to purchase the property or was it definitely a heloc that came after? If it was used to purchase the property, then it is probably a non-recourse loan too. Also, have they been in AZ continuously for the last two years? If not, then they would file under the exemptions of their previous state ...

[tobee43]

One of the forms your parents will have to fill out when/if they file ch7 is a "Statement of Financial Affairs". Question #10 asks them about property transfers, including all property transferred to a self-settled trust within the ten years immediately preceding the filing. I believe a Medicaid trust is a self-settled trust.

You can get a copy of the forms here: http://www.uscourts.gov/FormsAndFees...ptcyForms.aspx

Az exemptions here: https://www.azb.uscourts.gov/Documen...exemptions.pdf

The annuity & cash value of life insurance is listed exempt if they've been in place two years except for the amount of any premium that is avoidable by a creditor as a fraudulent transfer.

this wonderful information you just provided is why the key to this situation is to allow time to pass...and as much as possible....before they do any paperwork.

some people must file quickly...others can plan thoughtfully and carefully...again...some people are just not as lucky to have some time on their side.

i think in this case they could wait the time needed to not concern themselves with all the legal blocks...and just be able to answer a simple NO....to any questions...

[debee]

I agree with you Tobee that planning/waiting can be the right choice for some filers. But in this case, Dad is already 78 and I'm not sure he has ten years to wait in order to bypass the self-settled trust question before filing. If the opts for the two year wait after moving some money into an annuity/life insurance vehicles, they could lose the benefit of it if fraudulent transfer was suspected. Moving all of one's assets out of the non-exempt sphere into the exempt sphere is enough to make that determination. Move some of them and leaving some, is less obvious. I don't disagree with you, Tobee. I think I'm speaking to a different aspect. Mostly giving him something to think about as he does a risk assessment on his parents' behalf.