How does rental property, cars, and quitting job affect Chapter 7 bankruptcy?

[dpghammer]

Hello all! I have what I think is a unique question. Our spending got really out of control because I was promised a job promotion. Instead they cut back my department and actually demoted me. My wife is tired of working her stressful job as social worker and wants to spend time with our kids. If she does quit then we really cant make our monthly payments to credit card bills. If she quits and we still pass the means test, can we still file chapter 7?

Second question is we have rental property in a small town. Our mortgage is $1247 a month and we rent it out for $1,050 a month. It was our primary home but we moved an hour away to be closer to work. We rent out a house for $1,340 a month. If we do bankruptcy, what is the likelihood our old house will be taken away? We still owe $159,000 on the house and i think home values are about $150,000 in the neighborhood according to Zillow. We really would like to keep the house if possible. How likely will we get to keep it?

Third, we own 2 commuter cars we have loans on and two fun cars. My Datsun isnt worth anything but we have put $10,000 into our 300ZX. Will this likely be taken away?

Bonus question. I have a pension at work, $7,000 in my Roth IRA, $2,000 in my kids' accounts for college and probably $500 in I bonds in their name. Do I need to cash these in IF the times get really tough? Or can they keep them?

[AngelinaCat]

Hi, and welcome to the Forum.

I'll tackle the bonus question. FORGET that you even have those retirement accounts. Those are exempt items as far as BK is concerned. You still have to list them in your paperwork, but they cannot be touched, except by you.

One of the worst things 'Hub and I did was to cash in his 401k in an attempt to stave off BK.

I believe the children's education accounts are exempt too, but am not sure.

I don't know enough about rentals to be able to comment on those questions, but we have several members who have been there and done that.

Since you are considering a BK filing, start lining up free consults with several different BK attorneys. Specifically ask about the means test and filing a CH7. There are many members here who have been above the means test, and yet have filed successful Chapter 7s.

Lastly, if your children are small, then yes, your wife should stay home with them. They are only small once, and grow so fast--you can't get that time back.

You may end up with a small savings, in that there will not be the upkeep and fuel expenses for her commute to and from work, as well as any daycare expenses that you may have now.

Good luck to you!

[dpghammer]

Thanks for the welcome!

I pay $2,100 a month for minimum credit card payments and $960 a month for daycare so bankruptcy will relieve a ton of financial stress for us.

I thought of another question. 20% of my debt is because of medical bills. I have medical insurance through my job. If I am bankrupt, will the medical community decline any doctor visits for me or my family despite having insurance?

[BobMango]

That's quite a number of questions, most of which would best be answered by an attorney with more access to your particular situation. I had to chuckle at your opening statement though, regarding spending getting out of control because an expected pay increase didn't materialize. I think like many here, the spending was out of control before, the pay raises just helped postpone the inevitable. No judgment here. In my case I took losses in the stock and real estate market, combined with getting outsourced. Still took me 18 months to decide to file.

The first hurdle is the means test and it can go both ways. You could pass the means test and still run into trouble if the US Trustee thinks you are abusing the system, and in some cases they have decided that quitting or taking a lower paying job does just that. On the other hand, even failing the means test does not mean you can't successfully pursue a Chapter 7. Your disposable monthly income will play a large part as well.

If there is no equity in your rental property the trustee will most likely abandon it, (meaning you can keep it) but you need to be careful. The rental income following your filing will become property of the estate unless you are able to exempt it. I'm not familiar with California's exemption schemes, so again, consult an attorney. In any case, do not reaffirm the mortgage. You can search the site for many discussions on why that's a bad idea.

In regards to the cars, their value to the trustee will be determined by their value relative to the loans for those that are financed. For those without loans, the fair market value should be used, something like KBB or Edmunds. You will need to exempt the value there or risk having them sold for your creditors. Some trustees would go for them, some wouldn't. I had some championship cows that I could only partially exempt. The trustee abandoned them since he didn't want to get into the cattle business. If it's more trouble for the trustee to seize and sell then he will likely abandon such assets.

Your retirement funds in most cases should be exempt, again, check with an attorney. On the children's funds, we held funds for our children when we filed (proceeds from an insurance settlement) and didn't have any problems.

Overall it is difficult to say if you would lose property or be forced into a Chapter 13 based on what you've shared. Obtaining some free consults with bankruptcy attorneys will help to clarify that.

[dpghammer]

Damnit! She works for Child Protective Services and sees too much child abuse and is way stressed out. So her quitting could be a sign of abuse?!?!

[BobMango]

Damnit! She works for Child Protective Services and sees too much child abuse and is way stressed out. So her quitting could be a sign of abuse?!?!

No, not that kind of abuse -- but rather abuse of the bankruptcy system under Section 707. The potential outcome of such a determination would be to dismiss your case or convert it to a Chapter 13.

The trustee may ask why she is not working as they will know her work history from your tax returns. Just be prepared to give a better answer than "so we could qualify for Chapter 7." Things like health (physical or mental), caring for the kids, etc would make sense.

[dpghammer]

Sorry about the freak out. It just really worries me that she wants to quit. So you are saying that quitting a stressful job and taking care of my 3 and 7 year old is a legitimate enough reason to pass the means test. I am emailing local bankruptcy lawyers now but i just was wondering of people here did have an experience like I could be in

[keepmine]

Nothing in the bk code requires you to be employed. Your wife will not be the first person through here to quit a job or declined OT in order to qualify for a Chapter 7.

Really, no lawyer will respond to a series of email questions like you posted here. You'll need to call and make face to face appointments. Most will give either a free or low cost initial consultation.

As to medical debt-individual doctors don't have to continue to treat you or family members if you discharge your debt. If there 9is soeone you really want to continue to treat your family, make arrangements to pay them post bk.

[LadyInTheRed]

Staying home to take care of a 3 and 7 year old is in itself a perfectly reasonably reason to quit a job. Just don't say something like quitting the job "is a legitimate reason to pass the means test." She isn't quitting the job to pass the means test, right? She would do that even if you weren't going to file BK, right? But, keep in mind that if she isn't working, you probably won't be able to use childcare expenses as an expense when calculating disposable income.

[AngelinaCat]

Damnit! She works for Child Protective Services and sees too much child abuse and is way stressed out. So her quitting could be a sign of abuse?!?!

Quitting a job to stay home and raise the children IS a legitimate reason to do so. Also, the health factor, in that her health may improve if she quits this job and stays home with the children. Think "high blood pressure" or "ulcers". If she has high blood pressure, which markedly improves after she is home for a while, then that is a 'win-win' scenario. [NOTE: I am now talking about health and family care issues, and not necessarily BK.]