Possible to keep two houses?

[diana831]

My fiance and I are currently in the process of shutting down our unprofitable business and filing ch. 7 bankruptcy. Both of our credit ratings are already in the 500s and we are currently renting at $1000 a month. With the life change, we decided to downsize our rent payment by moving to a smaller place, but everywhere we have applied has turned us down for renting due to bad credit. So, I called my mom to see if she would co-sign for an apartment, and to my surprise, she instead offered get us a house (with us making the payments) with her as the primary since she has excellent credit (at the moment). However, my mother is also contemplating filing bankruptcy in about a year, and this would be her second house. She does have quite a bit of equity in her house, and with the price range she has given us we would have to buy a house at auction which would automatically give about 50k-75k in equity into that house as well. My question is if she does file bankruptcy (ch. 7 as well) in the future, would they inevitably take our house from her, or is there anything we would be able to do to keep both, besides filing ch. 13? Keep in mind, we would be only one year out of bankruptcy ourselves, so they probably wouldnt allow us to just have her released from the loan and have it just in our names... or would they? I could really use some help on this. I am very excited to possible get a house, but I dont want to get into the house, just to have it yanked out from under me in a year, and not to mention put a major negative on my clean credit report after our bankruptcy. Any help at all would be great. Thank you.

[lrprn]

If your mom does indeed file bankruptcy, then this is a very risky plan for you and your fiance.

Since your mom would be the primary owner on both houses, most states don't have enough homestead exemption to allow her to keep two houses if she files Ch 7. Some states won't allow a Ch 7 filer to keep more than their primary residence - the house she lives in. Her Ch 7 will be declared an asset case and the second home you two are living in has a good chance of being seized and sold by the trustee to pay her creditors.

It was a sweet offer for your mom to make, but Knowing that both you and your mom could be filing within the next year, it's probably best at this point for your mom to help you find a reasonable place to rent.

[diana831]

Thanks for the response. We live in Kansas if it helps. The statute on the homestead exemtion is as follows:
60-2301. Homestead; extent of exemption. A homestead to the extent of 160 acres of farming land, or of one acre within the limits of an incorporated town or city, or a manufactured home or mobile home, occupied as a residence by the owner or by the family of the owner, or by both the owner and family thereof, together with all the improvements on the same, shall be exempted from forced sale under any process of law, and shall not be alienated without the joint consent of husband and wife, when that relation exists; but no property shall be exempt from sale for taxes, or for the payment of obligations contracted for the purchase of said premises, or for the erection of improvements thereon. The provisions of this section shall not apply to any process of law obtained by virtue of a lien given by the consent of both husband and wife, when that relation exists.
The first two bold ors worry me, but the third one helps a little I think. Also, do you think the lender, when informed of the situation (just before my mother files), would sign the loan over to my fiance and I, and remove my mother to avoid the debt not being paid, even though our credit scores would be unsatisfactory?
Also, I've been seing alot of people on this forum that are able to buy a house a year or two after discharge, but I thought it took 7-10 years. Is the discharged mentioned after discharge of the debt (a year or two after filing), or after discharge of bankruptcy off of the credit report (7-10 years)? So, in short, if I file bankruptcy now, what are the chances of me getting a home loan a year or two from now, or would I have to wait about 10 years?
And one last thing, I have read about the posibility of paying the trustee the amount of equity you have in the house in order to keep it. Is that possible in these circumstances, and if so would it be on a payment plan or in one payment up front?

[woeisme]

If your house has equity in it like you say it will, your Mom can't sign the loan over to you before filing CH 7 whether the banks ok it or not, because the trustee is going to see that as fraud, her transfering over assets (equity in the house) to an insider. The only way it would work is if there was no equity in the house when she transfered it to your name.

In my opinion, if your Mom's finances are to the point that she is contemplatng BK, I don't think she should be signing up for more debt right now.

The credit market is tightening, so whether or not you'll be able to get a morgage after BK is uncertain, what someone was able to do last year may no longer apply. But I have heard of people able to buy within a few years of BK, it will really depend on your income and debt after you file and how you rebuild your credit through consistant payments on other items. While it won't come off your report for 10 years, that doesn't mean you won't be able to get credit for 10 years, just that the terms won't be as good initially (higher interest rates, needing more money down, etc.)

[krielly]

I'm no expert by any means, but just a thought.....

If the OP's mother purchases the house, but BOTH names are on the house, doesn't that offer some protection for the OP even if the mother files BK7?

I thought maybe someone with more knowledge could chime in on this thought................

[lrprn]

If the OP's mother purchases the house, but BOTH names are on the house, doesn't that offer some protection for the OP even if the mother files BK7?

Problem is that when mom files bk owning one house she's living in and with half-ownership in another that she's not living in, Kansas exemptions protect the house the filer is living in no matter what the equity but the exemption doesn't protect a second house - http://www.bankruptcyinformation.com/KS_exemp.htm

Her mom's trustee can force the sale of the second home to get at the half value owned by mom. I've read more than one case where this exact thing happened inside a family with a forced sale of the second house. It isn't pretty. And in this case, all that pain can be avoided by choosing a different way for mom to help out in this situation.

[diana831]

Thanks for all of your help. You guys have helped to pull my head out of the clouds and think about whats really best for us at this point. I am a bit of a dreamer sometimes. I spoke to my mom again to let her know its not going to work right now and ask if she would sign for an aparment instead. For one, she is very sure in herself that she will find a way to make it work, with one us as the primary and her as the cosigner at that. I'm almost positive it wont even work on the financing alone like that, since our credit is so bad. But, if by some stroke of insanity a bank approves us as the primary and her as the co-signer, would that change our options with the bankruptcy? Secondly, she also informed me that if this doesnt work, she is NOT willing to sign for an apartment. Ever since I can remember, she has had it out for rental properties and wants nothing to do with them at all. She must have had some really bad luck with them in the past. So basically, if there's not some way to make purchasing a house work, with our credit and the possibility of bankruptcy, we are pretty much screwed. Nobody else has good enough credit to even sign for an apartment for us, so we may just have to live in the slums. :'(