In Laws Scenario

[livininma]

Hi all,

I'm in Massachusetts. My in-laws are in over their heads. Here is their situation:

Father in law, retired
Mother in law, working still, earning probably $55k.
Both are 65 years old
They have a homestead act on their primary home in MA. The home has no mortgage, but does have a massive HELOC loan. $330k with a home value of somewhere around $250k.

Additionally they own a vacation condo which is pretty much a wash - it's probably something like $130k value and $130k owed on it with a mortgage.

They also have credit card bills somewhere around $50k or so. Also, they have one leased car and one owned car.

They are going to live with us during part of the year and planning on being in their vacation condo other times of the year. They want to sell their main home but since they are underwater and would have to bring $ to closing it's not really an option. They also talked about moving in with us and just renting their home.

I would think they are prime candidates for bankruptcy. I'm trying to convince them to go at least talk to an attorney about it but they are worried about stigma / etc. I just don't want them to have to struggle under this any more. Any suggestions or what solutions look like?

[LadyInTheRed]

Based on the information you've provided, they are excellent candidates for bankruptcy. They are under median income, so should have no problem qualifying for a Chap 7. They can file, not reaffirm the loans on either the home or the condo, stop paying on the HELOC, but live for free in the home until the bank forecloses. They would continue paying on the condo since they want to keep it. If in the future, the decided they can't afford the condo, they can walk away without having personal liability for the mortgage. But, they would probably have to continue to pay HOA fees until the bank forecloses.

They need to get over the shame about BK. If they don't, your MIL will work for the rest of her life just to pay off the creditors. Banks are in a business. Part of that business is taking the necessary risk of loaning money to people who may not pay them back. They charge interest rates and fees to offset that risk. Even with bankruptcies, they still managed to make huge profits.

Maybe a list of people who have filed BK will help:

Donald Trump, financier
Michael Jackson, singer
Wolfgang Amadeus Mozart, composer
Elton John, singer/composer
Kim Bassinger, actress
Mike Tyson, boxer
Mark Twain, humorist
Burt Reynolds, actor
Thomas Jefferson, patriot and president
Gary Coleman, child actor
MC Hammer, rap singer
Willie Nelson, country singer
Lorraine Bracco, “The Soprano’s” actress
Charles Goodyear, inventor of vulcanized rubber
PT Barnum, circus promoter
L. Frank Baum, author of “The Wonderful Wizard of Oz”
Mathew Brady, Civil War photographer
Oscar Wilde, playwright
Jerry Lee Lewis, rock singer
Rembrandt, painter
Henry Heinz, ketchup magnate
Milton Hershey, chocolate magnate
Henry Ford, auto magnate
Johnny Unitas, football player
Wayne Newton, entertainer
Mickey Rooney, actor
Debbie Reynolds, actress
John Connally, former Texas governor
Walt Disney, creator of Mickey Mouse
Mick Fleetwood, rock singer
Merle Haggard, country singer
Ulysses S. Grant, president and Civil War general
Dorothy Hamill, figure skater
Larry King, talk show host
Bowie Kuhn, former baseball commissioner
Stan Lee, comic book creator of “Spider Man

Henry Ford, Walt Disney and Milton Hershey all filed BK early in their careers after failed business attempts. If it weren't for the fresh starts bankruptcy gave them, we might not have ever heard of the Model-T, Mickey Mouse or Hershey's chocolate.

[livininma]

Thanks!! That will help me for sure.

I actually found out a bit more specific information. Their credit card debt is in excess of $55k. Also, the HELOC is 340k with house value of $250k, and in SC they did a 90/10/10 so they have a mortgage of 115k and a heloc of 30k, (total debt 145k) with a value of about $110k. So it's a bit deeper than I had thought earlier.

1) Do you know of any good ways to find lawyers? Looking for a reputable Yelp type of website.

2) Do you know if they are able to use their credit cards at all ahead of BK? THey are offering to pay for some of the construction material (bathroom fixtures, lumbar for the wood, drywall, etc.) for the basement renovation I am going to undergo.

[keepmine]

Do you know if they are able to use their credit cards at all ahead of BK? THey are offering to pay for some of the construction material (bathroom fixtures, lumbar for the wood, drywall, etc.) for the basement renovation I am going to undergo.

Once bk becomes a viable option, they need to stop using those credit cards. I'd suggest they also stop paying the credit card bills and the HELOC and use that money to support themselves. They also don't need to be paying money to relatives. You're an insider and when they file, any money they paid you within 2 years of filing could result in the trustee filing a lawsuit against you to recover the money.
They don't need to involve others in there bk.

[LadyInTheRed]

Please don't accept gifts from your parents that they have to go into further debt for! Parents often want to help their children even when they can't afford to. Do them a favor and finance your bathroom renovation without their help. I would say that even if not for the the fact that the BK trustee can come after you for the money as keepmine points out.

Online reviews are not a good way to find a lawyer, but if you have no other options, try Avvo.com. You could also try Martindale.com for reviews of attorneys by other attorneys. Relying on these sites only will mean there are plenty of good attorneys you are ruling out. If you know any lawyers, ask for referrals. A CPA or financial advisor may also be a good person to ask for a referral. Or the local bar association where your parents live. Your parents should consult with several attorneys until they find one they are comfortable with.

in SC they did a 90/10/10 so they have a mortgage of 115k and a heloc of 30k, (total debt 145k) with a value of about $110k.

Is that the condo? If they filed a Chap 13, they may be able to strip the Heloc since the balance on the first mortgage is more than the value of the condo. At least I think that can be done even though it is not their primary residence. But, that would mean 3 years of payments, assuming they are under the median filers which seems to be the case if their income is only $55K. They should discuss that possibility when they consult with attorneys.

[livininma]

Yeah they were planning on putting some $ towards basement renovations to help offset the cost since my wife and I are doing this to assist basically. I absolutely don't want to do anything wrong of course. They were just going to buy lumbar / bathroom fixtures / etc. There wouldn't be any direct gifting of $, i would probably go to home depot with him, but again if this isn't allowed then I will skip that obvoiusly. Don't want to create any wrinkles in the process.

My MIL is planning on working for a few more years so if they cleared out their home here and their credit card debt they would actually be in a position to be able to save a little bit each month, which would be great. I found out yesterday my father in law has been drawing on his IRA, which is now down to the mid 20k's, to make ends meet !!!! My MIL will get a pension when she retires as well so they should be OK for the foreseeable future but not under the mountain they are currently living in.

Thanks for the links. I saw Avvo but wasn't sure if it was reputable or shill reviews or something. I do have a few friends who are lawyers but we are also trying to keep this fairly quiet for my in-laws, at least as much as possible.

Yes, the 90/10/10 is the condo. Thanks for that info.... this has been very helpful. Going to try and make an appointment for them this week.

[Pjmax]

Make a few appointments. You really need to talk to more than 1 to find the best one for your inlaws situation. Most of us talked to 3-5.

[lillymarlene]

If you dare to, talking to a lawyer friend or acquaintance who does not do bk's would probably be the best. I found my chapter 13 attorney from talking to an individual whose lawfirm had previously done some work for my family. I think that most likely, nobody would want to recommend somebody incompetent since it would reflect badly on himself.

[livininma]

Well reversal today. My FIL has backed away from the idea entirely. He is now saying he doesn't want the stigma. I'm guaranteed it's a pride thing.... he has excellent credit despite the debt (730+) and he is bent on preserving it even though they have no credit required purchases on the horizon. He also claims he found a "miracle" consolidation loan that will roll up his HELOC, credit cards and save him $1000 a month. I'm trying to get him to just talk to an attorney ... no commitments ... just a discussion. I hate to see them live like this but I can't force it of course.

[LadyInTheRed]

There is only so much you can do. It's sad when pride gets in the way of good judgement.

I think he's going to find that his miracle is a fantasy. Nobody is going to refinance an underwater mortgage, especially when adding additional debt. Maybe that reality will force him to at least consider bankruptcy.

[ccgirl]

LadyINTHE RED
Great list of people! I didn't know that many of those filed BK!

[LadyInTheRed]

LadyINTHE RED
Great list of people! I didn't know that many of those filed BK!

Google "Famous people who filed bankruptcy" and you'll find more. Abraham Lincoln was left off the above list. He and Thomas Jefferson both filed several times. Lots of actors and recording artists. I think they suddenly start earning unbelievable amounts of money and don't know how to manage it.

[keepsmiling]

MOST of the time, those "miracle" loans are just money down the toilet. They should approach with great caution, perhaps reading up on the experiences of others who have BTDT.

I hope the inlaws see the light. Maybe you can refer them to this board, where they will find the support and encouragement you offer plus.

[livininma]

Another reversal. We have an appointment to go talk to an attorney next Tuesday. I think they may be finally coming to their sense :P

[livininma]

Another quesiton on this. Again, my father in law while willing to talk to a BK attorney wants that to be a last resort (which I think it is, obviously). However, he wants to find out about debt consolidation, debt negotiation, etc. Do bankruptcy attorneys know anything about this and will they recommend that as an alternative ? My concern is he caves in and moves to inaction again.

The reason I am concerned is that I am pretty sure this is an eventual inevitability. His wife wants to retire but their debt is the only thing holding the back (she can't afford not to work, although they easily could if they elimintaed their debt). Their HELOC I found out matures in 2016 and goes into repayment. Right now they are losing about $300 - $500 a month - but their heloc is tied to prime and in 24 months their HELOC goes into repayment from the draw period, and I think based on the math I see their payments will be something like $2000 more a month than they are today.

Can HELOC qualify for debt consoildation?