Question about ESPP and Chap 7

[brobeau21]

Hi I am new to this forum and I have been reading lots of the posts to get information. Thanks for this resource and thanks in advance for any advice and help.

My husband is about to file Chap 7. I filed last year when I found out I was being laid off and I was pregnant and on bed rest due to complications so I knew that I would not have been able to get a job for several months. They did not take my refund or even suggest taking it and I had my creditor meeting in Feb and was discharged in April. From what I am reading I guess I was very lucky and now I am worried that they will try and take our refund that is coming up. We used up all our savings to get to this point and I still have not been able to find a job making enough to pay for daycare and have enough left over to pay our bills. Our oldest started college this fall and even with scholarships and financial aid we still have to pay. So my question is that my husband has a ESPP worth about $6000 that we were going to use to help pay for college. Will that account have to be given up in the bankruptcy? Or can we cash it out now and use it to pay ahead on our mortgage (we are not giving up the house even though we are underwater on it) and make some home repairs that are badly needed and pay for the bankruptcy with the rest without it being a red flag?

Also I found out that during my chap 7 I reaffirmed the first mortgage but not our 2nd and right now our home value is lower than what we owe on our 1st. I read that the 2nd is worthless in this type of situation and that if my husband doesn't reaffirm it then after he is discharged that we can contact them (HSBC) and see if they will settle for a lot less than what we actually owe. Is that correct and if it is will I have to claim the amount they "forgive" as income and pay taxes on it?

Thanks again for any help!

[brobeau21]

Any suggestions or help?

[backtoschool]

The trustee has a right to claim your income tax refund. How much he gets depends on when you file.

If you cash out your stocks, you will need to spend down the money before you file. The stocks and the money from cashing them out are assets and if they exist when you file, the trustee can claim them. I would be very careful about what you spend the money on and do it over some time. Spending it all at once on your home right before filing might cause the trustee to delve very closely into your finances. But spending it over several months (the longer period of time you spread it out the better) on necessities will be fine. Be careful about paying ahead on the mortgage. If you have prepaid quite a bit of your mortgage for the year, then your income and expense schedules will be messed up, as you will not have your mortgage as a housing expense. If you are just trying to create more equity which will be exemptable with your homestead exemption then, be careful and have a good documented reason for doing so. Taking money from a non exempt asset (stock fund) and putting the money into an exempt asset is a red flag for the trustee and you will need to document everything. Expect questions from the trustee. You should be able to spend the money on necessary expenses pretty quickly. Using it for repairs, stocking up on food, paying tuition, etc are all legitimate expenses and would be less of an red flag than prepaying the mortgage.

As to settling the second after discharge, ymmv.

[brobeau21]

Thank you backtoschool for your reply. Can you tell me what your last statement means? "As to settling the second after discharge, ymmv."

We stopped paying the cc payments in September and our phones are already blowing up from collection agencies plus my FIL has been getting calls at his house as well. Last year when I stopped paying the ones in my name only it took several months for it to get this bad. Because these cards are in my husband's name only they won't talk to me. Have the cc companies upped their time lines as to collections? How long can we feasibly wait before filing?

If repairs and stocking up on food are ok expenditures would putting money in our daughter's checking account that she has to use for living expenses at college also be considered ok?

[backtoschool]

Thank you backtoschool for your reply. Can you tell me what your last statement means? "As to settling the second after discharge, ymmv."

We stopped paying the cc payments in September and our phones are already blowing up from collection agencies plus my FIL has been getting calls at his house as well. Last year when I stopped paying the ones in my name only it took several months for it to get this bad. Because these cards are in my husband's name only they won't talk to me. Have the cc companies upped their time lines as to collections? How long can we feasibly wait before filing?

If repairs and stocking up on food are ok expenditures would putting money in our daughter's checking account that she has to use for living expenses at college also be considered ok?

As to settling the second mortgage, I simply meant that when to settle and how much to settle for will depend on your lender. HBSC is notoriously difficult to deal with, so do some research on this forum on how to deal with them, and be prepared to go several rounds of negotiation, etc...

Do NOT put money in your daughter's checking account! That will be considered an insider payment, and the trustee will go after your daughter for the money. Buy her food, pay for her mean plan, prepay some expenses for her, but do not put money in a checking account for her.

As to the collectors calling, sign up for google voice, transfer your numbers to the free number they assign to you, and let google screen your calls for you for free. Turn off the ringer too if you can.

[brobeau21]

Thank you I will check out Google Voice. I will also check with the school to see if they will work with us on paying ahead since her first year has already been covered but we may be short for next year. It is a small private school so I will probably have more luck getting them to work with me than if it was a big school. But if home and car repairs are ok then that may be the route we go since we have some repairs that are needed on the house and both of our cars are 10 yrs old and need some minor repairs/maintenance as well.

How long would we have to wait to file to possibly not lose our refund? But then I am thinking that if we cash out that stock that with those capital gains that we may not get much of one anyway and it could end up being a mute point.

[backtoschool]

Home repairs that are necessary (ie not cosmetic), car repairs, tuition, food, medical expenses, insurance expenses are all legitimate ways to spend the money. I wouldn't worry about the tax refund. Some trustee's don't take the refund, some do, and it is more important to spend the non-exempt part of the $6,000. Make sure you figure out what is exemptable of the $6,000. If you are using federal exemptions and are not using your entire homestead exemption, then you will be able to exempt some of the cash with a wildcard exemption and won't need to spend it all before you file.

[brobeau21]

Forgive me for asking a possibly dumb question but if I have no equity in my home (it's negative) then would I be using any homestead exemption at all? If we can exempt it then we would rather wait to cash it out until next year I was just thinking that there would be no way to exempt it. How do I figure that out?

[backtoschool]

Forgive me for asking a possibly dumb question but if I have no equity in my home (it's negative) then would I be using any homestead exemption at all? If we can exempt it then we would rather wait to cash it out until next year I was just thinking that there would be no way to exempt it. How do I figure that out?

It looks like Alabama does not allow federal exemptions, but has a $3,000 wildcard.

[brobeau21]

Thank you again! We can cash out half of it then rather than all of it and exempt the other $3000 to save for tuition next fall. We have no other savings and no other property that would need the use of that $3000 exemption.

[tcreegan]

Hi brobeau21, and welcome!

backtoschool has you covered, just thought I could fill in on one easy question:

will I have to claim the amount they "forgive" as income and pay taxes on it?

No, not for debts discharged in a BK

One other thing I saw, if creditors/collection companies are calling your father-in-law, you can remind them they are violating the Fair Debt Collection Practices act and you will be sueing for damages if they continue. For a bunch of other stuff they can't do but still do as well as how to get the calls to stop, check out http://www.ftc.gov/bcp/edu/pubs/cons...dit/cre18.shtm

Good luck with the filing, kids, everything else...

Tom in Colo

[brobeau21]

My FIL and my husband have the same name except FIL is Jr and hubby is the 3rd so I am thinking that is why because we have never used their number on any of our stuff and hubby hasn't lived at home in 20 yrs. FIL has told the ones who have called that they have the wrong one so hopefully they will not call anymore but if they do then we will definitely remind them of that violation.

That is good to know that if we can negotiate with HSBC on that 2nd mortgage that we won't have to claim that as income.

Thanks Tom for the answers! I sure hope we can get through this without much more headache. Losing my job while pregnant and then not being able to find another one has been very stressful and worrisome.

[tcreegan]

At the end of the day, being there for your kids is what matters most. Ours are grown now, and we are enjoying our first granddaughter!

Hang in there!