A complex BK question

[PhillyPhil]

Greetings,

First off thanks for the help in advance. This post concerns my mother whom I'm trying to help out.

Currently, she has about $80,000 in debt. She has spoken to a bankruptcy attorney here in Pennsylvania and he has said that she is unable to file anything but Chapter 13 due to having too much equity in her home. She views Ch. 13 as a kindof double edged sword due to the fact interest will stop accruing yet her credit will be destroyed. Since she is 54 years old I believe she is really looking for some sort of debt forgiveness. Almost all of the debt comes from dealing with a messy divorce from my father.

My question is this:

Is it possible for her to sell the house so that no equity exists and then file a chapter that allows debt forgiveness? If not I'm open to suggestions. She makes very little money yearly and needs as fresh a start as possible. I suspect a BK attorney can only offer so much legally and I'm looking for other options for her.

Thank you again!

[keepmine]

How do you sell the house so no equity exists?

[dina13]

If she sells her house, she'll be sitting on a bunch of cash, and she'll have to disclose it to the trustee. Federal exemption will allow her to keep only $21,625 of her real property as homestead exemption, or if she sells her house, up to $10,825, plus $1,150 wildcard, plus personal property, and some other stuff. But generally speaking, if she files for ch.7 bk any time soon, she might either lose her home, or lose the cash from the sale of her home.

I'm trying to think of the alternative solution to her situation, but nothing constructive comes to mind. If she doesn't file bk, and gets sued, she'll have a lien attached to her house (I don't think they can force her to sell her home though). If she files ch.7, she will lose her home.

If she sells her home now, puts money in exempt retirement account, and then files ch.7 in a few years - maybe that will work. Honestly, I have no idea, but I like to come up with creative solutions. Let's see what other folks say.

[despritfreya]

If your mom wishes to sell the home and use the proceeds to negotiate with creditors outside of bk, such is possible.

If she wishes to sell the property, live off the proceeds (keeping track of how the $$ is spent) and then file, that is also possible.

If she wishes to sell the property and give the proceeds to you or someone else to hold and then file bk the Trustee will go after the $$.

If she wishes to simply transfer title to the property and then file bk, the Trustee will unwind the transfer, sell the property and all of the net proceeds would go to creditors. Your mom would not be entitled to claim any exemption.

She is being told to do the 13 because she can pay the non-exempt value to her creditors over 5 years and keep the home. If she tries to "play games" she will get caught so just do not even suggest it.

Des.

[AngelinaCat]

Hi PhillyPhil, welcome to the Forum.

We, the Forum Members, need to know some answers first, before we can even begin to try to answer questions and give advice:

1. What exactly is that $80,000.00 debt? Secured? Unsecured? Credit cards? Loans? Payday loans? Balance transfers?
2. What does she owe on the house? Does she want to keep it? Does she want to sell it? Is it in a 'home community where there are Homeowners Association fees and dues?
3. How many mortgages are on that house?
4. You mention an 'ugly divorce'. What does she have to pay the ex? If she doesn't have to pay him, does HE owe her anything?
5. Is your Mom employed? If so, how many hours a week? Does she have health insurance?
6. If she is NOT employed, what is her source of income? How does she pay her bills? What ARE her bills, by the way?
7. Is she 'Head of House'?
8. Is there 'Homestead Exemption' in your state?

Okay, that is a start. You need to get with your Mom, and help her get all of her stuff together so that she can answer these questions. I can probably think of more questions, but, as I said, this is a start.

Please make sure that she goes to at least three or four more BK attorneys and talk with them. She possibly can qualify for a CH7. But she will have to have the answers to those very basic questions ready.

Good wishes to you and your Mom.

[AngelinaCat]

Hi again. Dina13 and Des got in ahead of me, so you and your Mom have more scenarios to ponder.

[PhillyPhil]

Hi PhillyPhil, welcome to the Forum.

We, the Forum Members, need to know some answers first, before we can even begin to try to answer questions and give advice:

1. What exactly is that $80,000.00 debt? Secured? Unsecured? Credit cards? Loans? Payday loans? Balance transfers?
2. What does she owe on the house? Does she want to keep it? Does she want to sell it? Is it in a 'home community where there are Homeowners Association fees and dues?
3. How many mortgages are on that house?
4. You mention an 'ugly divorce'. What does she have to pay the ex? If she doesn't have to pay him, does HE owe her anything?
5. Is your Mom employed? If so, how many hours a week? Does she have health insurance?
6. If she is NOT employed, what is her source of income? How does she pay her bills? What ARE her bills, by the way?
7. Is she 'Head of House'?
8. Is there 'Homestead Exemption' in your state?

Okay, that is a start. You need to get with your Mom, and help her get all of her stuff together so that she can answer these questions. I can probably think of more questions, but, as I said, this is a start.

Please make sure that she goes to at least three or four more BK attorneys and talk with them. She possibly can qualify for a CH7. But she will have to have the answers to those very basic questions ready.

Good wishes to you and your Mom.

I will work on getting extremely specific answers to these questions and post them here when I do. I really appreciate everyones help, thank you all very much. I want to be able to post all the specifics from here on out so I will be back in a few days time!

[keepsmiling]

Another q.... where will she live once she sells? what will it cost?

[CarolynTIXE]

Hi Phil,

In addition to the legal counsel you are seeking, have you tried contacting the Consumer Bankruptcy Assistance Project in Philly? If you're mother is outside the city, there are similar programs across the U.S.

A couple of good resources:

1. It may be informative to read through Section 727(a)(2)(a) of the Bankruptcy Code.
2. There is also a post on this forum under General Bankruptcy Talk, titled, "Link" ... For Members that has a link to the Atlanta Bankruptcy Blog. The attorney running this blog has posted an article titled, "Troublesome Transfers Disrupt Bankruptcy Planning". He describes, in plain language, situations where clients have to come to him having transferred property out of the estate in order to avoid creditors, as well as current case law. It was a good article and applies to people nationwide.
3. AngelinaCAT is right. Keep looking for more good attorneys who give you answers according to the Code.
4. Investigate these attorneys! Before your mother hands over money, find out if their license is current and if they have had any administrative actions against them. A good resource is the State Bar. I usually use Fight Fraud America under the Attorney License Verification since it has links to all states. Or you can go directly to PA Disciplinary Board in PA.

[ValleYum]

Would a reverse mortgage help in any way? Just throwing that out there - I just saw The Fonz and his commercial for that product. LOL

[keepmine]

Problem with a reverse mortgage is, the cash received would likely be beyond any exemption.