Forum Rules (Everyone Must Read!!!) (updated: 04/28/2015)

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Too much Home Equity - Any way to save it?

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  • Too much Home Equity - Any way to save it?

    Hello ! I recently found this site and it has been a great source of information however I have a question regarding home equity and chapter 7 bankruptcy. I live in Georgia (a state that requires folllowing state - not federal - rules regarding exmptions and home equity. In Georgia up to $21,500 of your primary residence home is exempt. My issue is that I have much more equity than that in the home. My mortgage is $111,000 remaining but the house appraises as of today at $240,000. For the last 3 years I have been renting the house out but now my tenants have moved out and I am trying to decide if I should just sell the property or if I should move back in to it and use it as a primary residence.

    My preference is to sell it and collect the $120,000 or so that I would gain from the sale. I have been disabled and unable to work since September, 2014 and as a result I have mounted massive credit card debt (around $90,000), some medical debts and a promissory note that I owe to a friend for around $45,000. I am desperate to pull the equity out of the home as I need it to live on. Is there any way for me to save the equity in the home? My credit is destroyed so I can not do a cash-out refi and Georgia state laws only protect a measly $21,500 homestead exemption. I have considered a few options and could use some guidance as to the best course of action:

    1. What happens if I just sell the home and do not declare bankruptcy at all? My car is 5 years old, not fancy and is paid off. Other than that I have no other assets that any of my creditors could attach debt to via liens, etc. and since I am disabled I have no paycheck to garnish wages from. I would just continue to rent an apartment to live in and the house sale would give me enough money to survive frugally for quite a while. Would this work? Since I need the money basically to just survive this seems like the best option but I am not sure. I would wait as long as possible, perhaps even years, to declare bankruptcy in this scenario. What happens if I just don't file for bankruptcy at all? With no assets or a paycheck to even garnish could I just use the money from the sale to live on while I try to recover from my disability (and hopefully find work that can accommodate my disability issues) I am really not certain how I am going to even survive without the money from the house sale. Is anything to be gained by even declaring bankruptcy in this scenario? If I declare bankruptcy I would have to account for the cash I made from the home sale or if enough time goes by since the home sale would it then be ok that I had to use the cash proceeds just to survive? I am worried I could get in trouble in this scenario because I would basically be attempting to hide the cash from the sale ...but considering my disability if I do not do that I could even end up living on the street homeless and bankrupt.

    2. Is there a way to protect the home equity above and beyond the $21,500 Georgia limit via setting up some kind of trust (revocable or non-revocable) ? In this scenario I could move back in and use the home as my primary residence. I would declare bankruptcy after the trust has been created...most likely I would wait as long as possible to declare bankruptcy since I would have no assets or a paycheck to go after. Would I even need to declare bankruptcy in this scenario? If so, when should I declare soon as possible or delay for as long as possible?

    3. Could I simply transfer the property to a friend or family member for some small amount of money and have them assume the mortgage? I would then move in and rent the home from said friend or family member. I always hear rumors about people who have done this kind of thing and that it actually worked. I would declare bankruptcy later on down the road after some time has passed, perhaps even years afterwards. Since I would then have no assets to place liens on or a paycheck to garnish I don't think there would be any immediate need to declare bankruptcy? Or would it be better to declare it as soon as possible?

    4. Just simply move back in to the house and use it as my primary residence. Eventually creditors would start to attach liens to the home. I could declare bankruptcy and would only be able to preserve the $21,500 per the GA homestead exemption law. In this scenario I will most likely never be able to sell the house without losing almost every penny I have in equity beyond the $21,500 but I would have a place to live that can not just be outright taken away from me..(so long as I can keep paying the mortgage that is...) In this scenario I would have very little money to live on and would be dependent on financial support from friends/family until I can find a job that can accomodate for my disability.

    I welcome all constructive suggestions. Has anyone else out there had to deal with this kind of situation where you have alot of home equity and not many ways to protect it or cash it out? I will be seeing an attorney about this but I would love to hear advice from anyone who has had to deal with this kind of situation!

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