When the homestead is NOT exempt

[JenniG]

My husband and I filed bankruptcy recently and were told by our attorney that our home would be exempt. We then had the meeting with the trustee and soon after found out that the trustee is arguing that our home is not exempt because we purchased the home in Nov 2007 and some of our debts were existing at that time. Specifically $1,000 in medical bills and about $3,500 of my $26,000 in student loans. I am still in school and my student loans are not even in repayment status yet. Our home is valued at about $50,000 and we have about $30,000 in equity because we purchased the home from my parents at a huge discount. Can the trustee really take our house to pay off $4,500 in debt? I don't even understand how he can be figuring in the student loans when they are not in default and are not even due currently. I am so afraid we are going to lose our home. This is the house I grew up in and my emotional bond is very strong. I would appreciate any advice.

[despritfreya]

Please answer the following:

1. How much cash did you give to your parents in 2007 in exchange for the deed to the property?

2. Was there a mortgage on the property in 2007 and if so, what was owed?

3. If there was a mortgage on the property who has been making the payments, you or your parents?

4. What was the value of the property in 2007 (not today)?

5. What is the value of the property today? - never mind as you have indicated $50K.

6. You did not file bk to discharge only $4,500.00. How much do you totally owe, including the student loans (yes this is a debt even though you are "not in default"), credit cards, medical bills, taxes, personal loans, repossessions, etc.

Depending on the answers to the above, I may have more questions or I may be able to explain what is happening and why.

Des.

[Flamingo]

My husband and I filed bankruptcy recently and were told by our attorney that our home would be exempt. We then had the meeting with the trustee and soon after found out that the trustee is arguing that our home is not exempt because we purchased the home in Nov 2007 and some of our debts were existing at that time. Specifically $1,000 in medical bills and about $3,500 of my $26,000 in student loans. I am still in school and my student loans are not even in repayment status yet. Our home is valued at about $50,000 and we have about $30,000 in equity because we purchased the home from my parents at a huge discount. Can the trustee really take our house to pay off $4,500 in debt? I don't even understand how he can be figuring in the student loans when they are not in default and are not even due currently. I am so afraid we are going to lose our home. This is the house I grew up in and my emotional bond is very strong. I would appreciate any advice.

Did you have an appraisal done indicating the home is only valued at $50,000? Is this a small home? Why is the value so low? I believe that may be part of the problem here as to the trustee.

[JenniG]

Did you have an appraisal done indicating the home is only valued at $50,000? Is this a small home? Why is the value so low? I believe that may be part of the problem here as to the trustee.

The home was appraised in 2007 at $51,000.00 at the time of our purchase. It is a relatively small house that was in need of many updates and repairs when we purchased it. My parents sold the house to us for $23,000 so we had automatic equity in the home. Do you believe the trustee will actually take our home for such a low amount of debt ($4,500)? I have asked my attorney to try to work out a payment agreement with the trustee so we could make monthly payments and keep our home, but I have not heard back from him yet. Also, if the trustee does decide to take our house, would we have the option to buy it back before anyone else could buy it? Do you know of any way around this or tips that may be helpful to is in sorting out this matter? Should we ask the attorney to explain to the trustee why our home was appraised at $51,000 so he doesn't think we are sitting on a much more expensive home? I have no idea what to do and am worried that we will lose our home. It just seems very unfair for the small amount of debt we are talking about. This matter is further complicated by the fact that I lost my job a few months ago and my husband has been off work for over a month with no income, following knee surgery. We have a small house payment now and we know we will never find another place to live with such an inexpensive payment. Filing bankruptcy is supposed to help us get back on our feet so we can make it financially... but if we lose our home, this bankruptcy will have set us back further than we were prior to filing.

[keepsmiling]

Why would an attorney even agree to file for such a small amount?

[Peeps]

Hi JenniG,

It would be helpful to understand what your goal was in filing bankruptcy. You've mentioned $1k in medical bills. And $3.5k (of a total $26k) in student loans, which are very difficult to discharge under most circumstances, BK or not. So did you file BK just to get out from under $1k in medical bills? The reason I'm asking is that it seems a bit drastic to enter bankruptcy for $1k in dischargeable debt. Were there other debts that caused you to consider BK?

[JenniG]

Please answer the following:

1. How much cash did you give to your parents in 2007 in exchange for the deed to the property?

2. Was there a mortgage on the property in 2007 and if so, what was owed?

3. If there was a mortgage on the property who has been making the payments, you or your parents?

4. What was the value of the property in 2007 (not today)?

5. What is the value of the property today? - never mind as you have indicated $50K.

6. You did not file bk to discharge only $4,500.00. How much do you totally owe, including the student loans (yes this is a debt even though you are "not in default"), credit cards, medical bills, taxes, personal loans, repossessions, etc.

Depending on the answers to the above, I may have more questions or I may be able to explain what is happening and why.

Des.

Good afternoon! I'm sorry, I didn't see your response before. Below are the answers to your questions.

1. We did not give my parents any cash in exchange for the deed. We got a mortgage for $23,000.

2. Prior to us purchasing the home, my parents had owned the home for years. There was no money owed at the time that they sold the home to us.

3. For our mortgage, which began in Nov 2007, we have made all of the payments. We are not in default or behind on any mortgage payments. Prior to 2007, several years had gone by since there was a mortgage on the home.

4. In 2007, the home was appraised at $51,000

5. We have not had a new appraisal. I suspect the value may be slightly more now as we have made some much needed repairs.

6. Our total debt was about $100,000... this includes debts that we are not seeking to walk away from, such as our home and my 2002 mini van. $26,500 of that total is student loan debt, which I know will not be discharged. So... total debt that we will actually (hopefully) see discharged is under $50,000

Jennifer

[JenniG]

Why would an attorney even agree to file for such a small amount?

The $1,000 in medical bills and $3500 in student loans are the debt we had at the time that we bought our home. The trustee says our homestead is not exempt because we have debt that existed when we bought the home. The actual amount of our total debt was about $100,000

[JenniG]

Hi JenniG,

It would be helpful to understand what your goal was in filing bankruptcy. You've mentioned $1k in medical bills. And $3.5k (of a total $26k) in student loans, which are very difficult to discharge under most circumstances, BK or not. So did you file BK just to get out from under $1k in medical bills? The reason I'm asking is that it seems a bit drastic to enter bankruptcy for $1k in dischargeable debt. Were there other debts that caused you to consider BK?

We filed with about $100,000 in debt. However, that includes debts that we do not want to discharge, such as our mortgage and my mini van. Also, that includes my student loans which total about $26,500 so far and I know those will not be discharged. The amount we hope to see discharged will be under $50,000 and includes mostly medical bills and charges for a previous vehicle that we allowed to be reposessed during the whole Dan Nelson scam.

[Tikitrey]

Confused as to why the trustee is saying you had the debt at the time you purchased the home. Seems like that doesn't matter. You should still have a homestead amount depending on what state your in. In Az, we are "an opt out" state, meaning we (Az) have an exemption amount on a home (150k equity) vs the what the fed. gov. issues.
We are in a similar situation where we have too much equity but have been told by our attorney that we will be given the option by the trustee to buy back the difference. ie; Equity in house is 155k but Az only allows 150k in equity leaving us 5k over the state exemption amount. We have the option to pay back the 5k to the trustee and there by keep the house. I've been told that any time you exceed your exemption amount most trustees would rather you pay back the difference vs them going through the hassle of selling the property to obtain the difference. In some cases if there isn't that much in equity to obtain they will even scrap it and not go after the money. Depends on your trustee and what state your in.

[JenniG]

Confused as to why the trustee is saying you had the debt at the time you purchased the home. Seems like that doesn't matter. You should still have a homestead amount depending on what state your in. In Az, we are "an opt out" state, meaning we (Az) have an exemption amount on a home (150k equity) vs the what the fed. gov. issues.
We are in a similar situation where we have too much equity but have been told by our attorney that we will be given the option by the trustee to buy back the difference. ie; Equity in house is 155k but Az only allows 150k in equity leaving us 5k over the state exemption amount. We have the option to pay back the 5k to the trustee and there by keep the house. I've been told that any time you exceed your exemption amount most trustees would rather you pay back the difference vs them going through the hassle of selling the property to obtain the difference. In some cases if there isn't that much in equity to obtain they will even scrap it and not go after the money. Depends on your trustee and what state your in.

Thank you for your reply. I need to do some research and find out about exemption amounts in IA as well as federal allowances. I agree that this just doesn't make sense. I did find out through some online research that the trustee makes a commission from any property he takes and sells... It seems so unfair that a person who stands to make a commission from the case should be placed in the position of trustee. He is not a disinterested party, as I feel the trustee should be.

[despritfreya]

. . . answers to your questions. 1. We did not give my parents any cash in exchange for the deed. We got a mortgage for $23,000. 2. Prior to us purchasing the home, my parents had owned the home for years. There was no money owed at the time that they sold the home to us. 3. For our mortgage, which began in Nov 2007, we have made all of the payments. . . 4. In 2007, the home was appraised at $51,000. 5. We have not had a new appraisal. I suspect the value may be slightly more now as we have made some much needed repairs. 6. . .So... total debt that we will actually (hopefully) see discharged is under $50,000

.

Based upon the above there is nothing here for the Trustee to go after. As far as I can tell Iowa has an unlimited exemption, assuming you are using State exemptions (not Federal). HOWEVER, if you have not owned the home for at least 1215 days (approx 3.3 years) prior to filing, your homestead, despite State law, is capped at approximately $136k in value.

Sounds like the Trustee is blowing smoke and will go away.

Des.

[Peeps]

Iowa sure has some strange exemption laws for homesteads. I do see the trustee's point (not that I like it). I'm in a different state but from what my attorney told me, when there's an something that doesn't fit into the exemptions, a person is often given the option of paying the difference. A trustee probably doesn't want to deal with taking your home and selling it for the $4.5k in debt that existed prior to the home's purchase. That's a lot of work just to recover a smallish amount of money (ok, maybe not smallish to you or me, but trustees like bigger chunks of money).

Assuming you can show that the debt incurred after you assumed the mortgage wasn't for the home improvements you've mentioned, the trustee might ask you to cough up the pre-purchase debt of $4.5k and then allow the rest of the BK to go through. Just my humble best-guess. Fingers crossed, I hope the best for you.







For Iowa, the homestead exemption is limited to one-half (1/2) acre in a city or town and forty (40) acres in the country. The exemption does not apply against taxes, debts existing prior to purchase and debts for purchase or improvement of the homestead.

http://www.lawchek.com/resources/forms/que/homestead.htm

[chicagoannie]

The $1,000 in medical bills and $3500 in student loans are the debt we had at the time that we bought our home. The trustee says our homestead is not exempt because we have debt that existed when we bought the home. The actual amount of our total debt was about $100,000

I do not understand this...don't most people have debt when they purchase a home?

[despritfreya]

Iowa sure has some strange exemption laws for homesteads. . . For Iowa. . .The exemption does not apply against taxes, debts existing prior to purchase and debts for purchase or improvement of the homestead.

Very interesting. . .

Des.