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    Homestead Exemption

    Prior to discovering that I would have to file bankruptcy I was attempting to sell my home. In order to free up the equity for a downpayment on a new home I extended the home equity line of credit and pulled out those funds. Now all that has changed and I probably won't be able to get a new mortgage after the bankruptcy. In addition to this the value of the house has gone down by over $20,000.00 because of the slump in the housing market. Because of this I have withdrawn my house from sale and want to put those funds back in to repay the line of credit in order to bring down my mortgage payment. Is there anything wrong with doing this with regard to the bankruptcy? Basically the amount I want to put back in against the line of credit will bring the total mortgaged amount to about what the house would currently value for, possible a little less depending on how accurate a valuation would be. I really don't want to be seen as transferring assets to defraud creditors. As far as I can see this was an exempt asset that I am replacing as an exempt asset.

    #2
    This is a toughie!

    The 2nd is a Secured Debt to a Secured Creditor. The Trustee wouldn't have much recourse to go after the money as a preferential payment like they would with monies paid to unsecureds.

    But, how long ago did you take out the loan and how much money are we talking here?? How long from the time you pay back on the house until you plan to file?? Just curious.

    The key thing with filing BK is patience. You gotta wait, wait, wait as long as you possibly can. It certainly would not look good to the Court if you fork over a chunk of change to your mortgage lender one month and filed BK the next.
    Filed Ch 7 - 09/06
    Discharged - 12/2006
    Officially Declared No Asset - 03/2007
    Closed - 04/2007

    I am not an attorney. My comments are based on personal experience and research. Always consult an attorney in your area to address concerns related to your particular situation.

    Another good thing about being poor is that when you are seventy your children will not have declared you legally insane in order to gain control of your estate. - Woody Allen...

    Comment


      #3
      This is all pretty recent, it all happened in the last couple of months. The extention on the home equity was about $50,000.00 and has now all been used to settle debts. What was left has now been put back against the home equity line of credit to try to bring my mortgage down. For some reason I thought that you were allowed to do bankruptcy planning and thought that I was actually being responsible in doing this! I am planning on reaffirming the mortgage and continuing to pay it if that makes any difference to how this will all be viewed.

      Comment


        #4
        We were in a similarly tricky situation.

        We owed the IRS $8100 for taxes for 2005. We have no money to pay that kind of bill. But we did have an asset where we could get the money.

        We had significant equity in a vehicle. It was worth about $20K private sale and we owed $11,500. We wanted to do a cash out refi on the truck to get the money to pay the IRS. Attny said no. Cannot refi and take on new debt on the eve of filing BK.

        So our alternative was to sell the truck. Which we did. Quick sale. Took it to a few dealerships, found the best offer, did the deal, and walked with the check. Immediately filed and paid our taxes. The attny says the Trustee probably won't be happy with it, but there's not much the Trustee can do. We paid off the loan, a Secured Creditor, and the IRS, a Priority Creditor. If it was CC's, the Trustee would go after the money in a heartbeat. But the Trustee won't go back against the Secured portion and definitely will not go up against the IRS.

        How your situation is viewed will totally depend on the Trustee and the Judge. The money you repay on the Home Equity probably won't be questioned as that's a Secured Creditor/Debt.

        Again, not to be rude, but what other types of bills did you pay, roughly how much of the money was used for them, and when? You don't have to be specific. Just enough detail for us to get a feel for where this might be headed.

        Keep in mind folks here are not attnys. We're relating from our own personal experience from having been in similar situations. And while I know a truck is not a house, it's kinda the same principal working there. Using a Secured asset to pay non Secured debt.
        Filed Ch 7 - 09/06
        Discharged - 12/2006
        Officially Declared No Asset - 03/2007
        Closed - 04/2007

        I am not an attorney. My comments are based on personal experience and research. Always consult an attorney in your area to address concerns related to your particular situation.

        Another good thing about being poor is that when you are seventy your children will not have declared you legally insane in order to gain control of your estate. - Woody Allen...

        Comment


          #5
          I had to take a cash advance on a credit card in January for $20K. In March I got the home equity out which was about $50K and used it to pay off credit cards totalling $28K and IRS taxes of $8K. The remainder I paid back against the home equity line of credit. I really want to sell the house and meet my commitment on that financial obligation but the market has slumped. The money that I put back against the line of credit has actually not created any equity. It has brought the amount owed down to about what the house is currently valued at. Being as I can't seem to sell my house I am going to have to take in a roommate to help with the mortgage. Putting that money back in also served to bring the mortgage payments down a little.

          Comment


            #6
            Basically, what I see as a big concern for you is the $28K you paid to unsecured Creditors. The $8K to the IRS is a payment to a Priority Creditor. Not a concern. No Trustee in their right mind would go up agains the IRS.

            Paying money from the HELOC back against the HELOC is money going against a Secured debt.

            But the $28K that went to unsecureds, the CC's,...... If you file BK within 90 days of that money being paid to the CC's, the Trustee is gonna go after it and get it back. Thereby lining the Trustee's pocket under the guise of redistributing $$ to Creditors.

            So you need to wait. Wait a while longer before you proceed toward filing. You can meet with attnys and do Consults. Learn and research. Know your exemptions. That kind of thing. But don't hire an atty, DO NOT pay a retainer fee until at least 90 days has passed on those payments to the Unsecureds.

            Even at that, be prepared for some tough questioning about the Cash Advance and then HELOC and paying back the CC's and some on the HELOC by the Trustee. Hopefully, a major chunk of the $28K was $20K back to the CC you took the cash advance on.

            Just be honest. Say what you said here. It all makes sense what you did. You can't help that the housing market happened to tank at just the wrong time for you.
            Filed Ch 7 - 09/06
            Discharged - 12/2006
            Officially Declared No Asset - 03/2007
            Closed - 04/2007

            I am not an attorney. My comments are based on personal experience and research. Always consult an attorney in your area to address concerns related to your particular situation.

            Another good thing about being poor is that when you are seventy your children will not have declared you legally insane in order to gain control of your estate. - Woody Allen...

            Comment


              #7
              Yep..of the $28K repayment to the credit card company, $20K was the cash advance, $3K was attorney fees for my divorce, $3K was to pay my company credit card for which there are assets to show for it which will flow back down to me and the small remainder was for living expenses. Knowing this do you think I will be ok to file?
              Last edited by confusedinfl; 05-10-2007, 03:05 AM.

              Comment


                #8
                In our case, when I first started out filling out attny's packet info sheets, we did have more than $600 to several creditors in payments within the previous 90 days. It was our regular monthly CC payments.

                One attny made it sound like some big deal. Said we'd definitely wanna wait until the 90 days had passed before we filed.

                Next attny explained what it was. That's considered Preferential Payments to Creditors. The Trustee can go after those funds and get them back. In our case, it was no big deal, as the monies we'd paid were routine monthly payments. It was really no big deal if the Trustee went after those monies.

                In your case, it could prove to be a very big deal. The Trustee will call for a hearing and make you explain the payments, who to, how much, and for what. And the Trustee will definitely go after that Cash Advance and CC paybacks. Maybe/probably not the attny's fee. Still, $23K will net the Trustee a fairly decent paycheck on their % alone. Plus, very often, since Trustees are attnys as well, the Trustee will hire themselves to represent themselves as the Trustee, thereby making even more money.

                So, just to be on the safe side, you might consider definitely letting more than 90 days pass after you paid out those monies before you file.

                Your income thing,.......... Look at how long of the previous 6 months you've been out of work at this point. What your total income is in that 6 months. That's the basis for passing the Means Test. If you don't secure employment right before you file, you'll have to wait, at least until after your 341 to go back to work. The Trustee/Judge will ask about changes in status at the 341. You'll have to answer truthfully there either Yes or No.

                It may be painful now to be unemployed, but it could pay off in the long run to have a fairly simple Ch 7 go thru with no glitches.

                The one problem here tho is,........... Are you trying to save your home in the BK?? Unemployment may be an issue there. If you can't stay current on your house payments, you cannot keep the house in a Ch 7. A thought for you, tho, is, if you were looking to sell and move anyway, you could let the house go in the BK. Just depends on what you want and/or need to do in that case.
                Filed Ch 7 - 09/06
                Discharged - 12/2006
                Officially Declared No Asset - 03/2007
                Closed - 04/2007

                I am not an attorney. My comments are based on personal experience and research. Always consult an attorney in your area to address concerns related to your particular situation.

                Another good thing about being poor is that when you are seventy your children will not have declared you legally insane in order to gain control of your estate. - Woody Allen...

                Comment

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