Obtaining a second mortgage to lessen home equity?

[lalap123]

I haven't yet asked my attorney this question yet b/c I don't want her to think I'm trying to de-fraud the system, but is there anything wrong with my husband taking out a home equity loan to pay down some of his smaller debts (he's not filing with me), thus eating up some of the available equity in our home? I am on the deed but not on the mortgage, so it won't be included in my chapter 7. We owe around $200K, tax assessed value is $260K, and Zillow is $222K. We strongly feel that a professional appraisal would come back around $230, taking all of the work that the home would need into consideration.

Thanks very much.

[justbroke]

Never borrow against your home to pay unsecured debt. It makes no sense becuase you've now encumbered your property for nothing. You may be surprised what a full appraisal comes back as. In any event, if you're married, and it comes back at $220K, and you owe $200K (including all arrearages, past due amounts, fees, etc)... then your Georgia Exemption would cover the $20K in equity (if married filing jointly).

If you're thinking of encumbering the home by getting a HELOC, only to pay off unsecured creditors... and then file Bankruptcy... it would be totally pointless as the Trustee would go recover all those "preferential" payments.

If you're unsure, why not get a Comparative Market Analysis (CMA) from a reputable Realtor? At least "know" what you're talking about instead of guessing. Even with this CMA, I do not recommend you encumber the home to pay unsecured debt that could otherwise be discharged!!!

[lalap123]

Thanks. I'm actually filing individually, and my husband is okay with this as long as it doesn't impact our ability to stay in the house (which is why I'm so worried). Also, it would be my husband's debt that would be paid off by the loan (not mine) since it will hopefully be discharged.

I was under the impression that trustees *may* only look at the appraised value and not let us submit anything to the contrary like an official real estate appraisal. I don't think my attorney has seen many cases like this, so at some point I guess I'm going to just have to trust her advice that most likely this won't happen.

[justbroke]

I was under the impression that trustees *may* only look at the appraised value and not let us submit anything to the contrary like an official real estate appraisal. I don't think my attorney has seen many cases like this, so at some point I guess I'm going to just have to trust her advice that most likely this won't happen.

Trustees look to "evidence of value". That's why the Trustee will look at the NADA, Kelly Blue Book, or even Edmunds for motor vehicle prices. Since Bankruptcy is a court of equity, best evidence prevails. The tax assessed value is the worse thing to use... especially these days.