totally confused

[gpolly123]

We have decided we have no choice but to file bankruptcy. My husband is on Social Security Disability and I run a family daycare. For the first time in 17 years of daycare we are experiencing quite a few openings and probably about a $3,000 to $4,000 dollar per month loss over last year. I have been supplementing our income using credit cards (bad idea) well once I ran out of Peter to pay Paul we decided to talk with an attorney about filing Chapter 13 although we would easily quality for a Chapter 7. My problem now is we own a home in California as our primary residence and we also are co-owner of a mobile home on land in California (my sister is on this property with us). My 19 year old son has been making the payment on the property for us, but is not on the loan. Our attorney does not think it would be problem to keep both properties. However, after reading some of the posts on here it does not look like that is possible. We are paying monthly payments to our attorney toward a $1700.00 deposit toward his fees that must be paid before we can file. I really am not sure what to do at this point. We have no equity in either property as we took out a HELOC to help when my husband was first put on disability. Any advice on this mess we have would be appreciated.
Thanks

[EastCoastVA]

I know Peter and Paul really well! We made the same mistake w/using credit cards when my husband's contract was not renewed.

I am in Virginia but here are a few things to think about.

- Consider getting a second opinion w/another attorney. Not sure how much you've paid this one but chances are you could get back everything or at least some of what you paid because he probably won't do anything on your case until you paid that $1,700 in full.

- Go online and google "Bankruptcy Exemptions in CA" Find out if CA follows the Federal Bankruptcy Laws or has "opted out" like Virginia - which has its own laws along w/non-federal bankr. laws just to make our lives really difficult. There are plenty of sites that will give lots of info. Do your homework on those important items and write down questions. Bankruptcy is way to complex and I don't think anyone can learn it just by searching the web but it can provide good info when asking an attorney questions.

- I don't know all of your expenses and income. But what I have found is that under Ch.13 a person should be able to keep their home and property w/no equity - I am not sure the Trustee can do much with it. And, I would also get that second opinion to find out what ALL your options are if you filed a Ch 7. My guess is they want all income and I would assume that would include what your son is paying on the loan. I would also ask the attorney what happens if you did claim your son's money as a loan - at least in our Ch.13 we filed against one parent who had given us a loan and they were able to claim it as a loss on their taxes.

- I don't know much about daycare businesses but I would think that it would be protected and you may have several options to consider.

Bottom line is our Ch.13 turned out to be a nightmare because of a bad attorney. We are kicking ourselves for not getting that 2nd or 3rd opinion - it's typically a free consultation. Do yourself a favor and do not file w/an attorney without all your questions answered - you are paying him to do you a service. You want someone who is going to explain all your options and do what is in your best interest - NOT just collect a fee.

Good luck!!

[skweakalee]

Hey gpolly, here are some things to consider:

- if you don't have equity in either property, you don't have to worry about exemption limits on residences because you don't "own" anything

- if you are paid up on those properties, Chapter 13 may not be the way to go unless you intend to strip a fully unsecured 2nd mortgage. Ch13 can be used to catch up on mortgage payments, but I don't know if that's the case here.

Please explain the following as well: "However, after reading some of the posts on here it does not look like that is possible."

The more information you give, the more ideas people can come up with.

[gpolly123]

Thanks Skweakalee for your reply. We are current on the property we own with my sister as my son and my sister make the payments, we are running about 20 days late on our primary residence, but hopefully will catch up before we file. Our second on our primary is current. From what I have been reading it seems its impossible to keep a second home in a bankruptcy. There is no equity in either property. On our primary home we have a first of 108,000 and a second of 57,000. The property is probably worth maybe 105,000. Our property with my sister we owe about 44,000 and it might be worth 30,000 at the moment. Our attorney thinks we can keep both in a 13 but not in a 7, my problem is between my daycare and my husbands disability is about $57,000 before any expenses (like food, gas, etc.) and taxes. We stopped paying our credit cards about 2 or 3 months ago and are finally catching up on utilities that we were running about 3 months past due on. I guess my concerns are that I want to make sure that we can show enough income to save our home and the mobile we own with my sister. I guess I just feel really stupid for using credit cards and an equity line to keep us afloat for so many years when my husband was put on disability I should have gone back to work and given up on my daycaare and its not to steady income at times. I am currently working on getting my real estate license and hoping to use this with my daycare. I apologize for making this so long.

[skweakalee]

Ok. Updated things to consider:

1) IF your house actually is worth 105,000, and the first mortgage is 108,000, you can strip the 2nd mortgage, but only in a chapter 13.

2) The median family income for 2 people in CA is just under 65,000. Considering yours is at 57,000, you would qualify for Ch 7. But the totality of the circumstances and good faith test may come into play because of the two houses (this is what I think your lawyer may be getting at). These will be addressed in #4.

3) Your income also allows you to submit a 3 year plan if you choose to file Ch13, rather than a 5 year plan.

4) Because your income is below the state median income, the presumption of abuse does not arise, BUT under 707b3 the court can consider whether or not you filed in good faith and whether the totality of circumstances demonstrates abuse.

My GUT reaction, which would be a mistake to print off and submit to the court, tells me that making payments on property totaling a value of 150,000 is not abuse especially considering you aren't even making the payment on the 2nd property.

5) Considering both 7 and 13 may be viable (after consulting with your attorney), weigh the benefits and costs of 7 vs 13:

7: done in 6 months usually, but you'll be stuck with that 2nd mortgage
13: three years of disposable income payments in exchange for stripping that 2nd mortgage

I, of course, have oversimplified things and have based any comments on limited information, but this should get your mind rolling.

[SMinGA]

I don't see the 2nd home as being an issue. Sounds like it might have $14k equity - only 1/2 of which is yours since your sister is joint on the loan/house. I believe CA has 2 sets of exemptions - discuss w/ attys which set is best to use. I don't believe you can use the hometead exemption on the out of state property (you don't live in it) but CA has a set of exemptions with a very generous wildcard.

This first atty is likely recommending ch.13 as it would allow you to get rid of the 2nd mortgage on your primary residence. Work on itemizing your necessary living expenses. Get as detailed as possible - if you present a correct budget, you should be able to work out a reasonable plan.

[LadyInTheRed]

California Exemptions

Last I checked, current CA exemptions are hard to find because of adjustments made April 1, 2010. I posted a link to the adjusted exemptions in my blog: http://www.bkforum.com/blog.php?b=336

Since you have no equity in your home, you most likely will want to use system 2 which will give you a $23,250 wild card.

[momofthree]

You should be able to use the "payment" that your son makes to the 2nd property as "rental income." That way, it will be a self-supporting investment property with 0 equity, and you should be able to keep it, especially since only half of it is yours, without having to file a ch.13. However, like a pp mentioned, you may want to go the ch.13 route just to strip the 2nd mortgage on your primary residence.