Personal Injury settlement to pay home mortgage exempt

[svanlaw1]

I am expecting to receive a substantial settlement from bankruptcy. Possibly 50-100k. I wanted to see if I could use the money to put towards my house payment which is an exempt item. Do you think the trustee would object? To me its similar to purchasing a car and then filing. I would wait to pay the mortgage with the settlement prior to filing. I have debts exceeding $200k

[StartingOver08]

I'm sorry - I don't quite understand your post. What I got was:

You are expecting to receive a settlement just before you FILE bankruptcy?
You are planning to put a large part of the funds into paying down your mortgage balance before filing. Your house is exempt.

1) In which state are you located?
2) What are your details (income/debt)?

Apparently it is a red flag to the Trustee and they can go after a large payment to your exempt assets - and the lookback is 2 yrs to 10 yrs. But there is one article featuring a case showing exceptional circumstances. You may want to review the case yourself to see if you qualify - and of course if your district would allow it.

Take a look at this article:

Some people think about protecting liquid assets in bankruptcy by paying advance mortgage payments or paying down mortgage principal on their homestead property prior to filing. Most bankruptcy attorneys will caution clients that paying extra money toward your homestead within two years (and possibly in some cases to 10 years) prior to filing bankruptcy will either forfeit the money paid toward the house or even cause a complete denial of your bankruptcy discharge. A recent court decision from the 8th Circuit Court of Appeals seems to provide debtors greater leniency to shelter money in their exempt homestead. In this case the court permitted the debtors to exempt approximately $140,000 applied to their homestead mortgage within 30 days prior to their bankruptcy filing.


The case is In re Wilmoth, 397 B.R. 915. Its an Arkansas case; Arkansas allows unlimited homestead exemption. The Circuit Court stated that even though the debtors? mortgage payments showed some indication (or badges) of fraudulent conveyance the court would not penalize the debtors because there was insufficient evidence that the debtors had an actual intent to defraud their creditors. This case had relatively complex facts, and there were many facts which distinguish the Wilmoth case from a typical situation when a debtor thinks about sheltering money in their exempt homestead. For example, the court noted that the Wilmoths did not liquidate or hide in their homestead substantially all their non-exempt assets, they fully disclosed all financial activity, and that they relied on good faith advice of their attorney. The Wilmoth holding may not apply to another debtor who invests all their liquid cash into a homestead prior to filing bankruptcy. Nevertheless, the holding provides a relatively liberal opinion of pre-bankruptcy planning. The 8th Circuit court noted in its opinion that the 11th Circuit Court of Appeal (the Circuit that rules on Florida cases) has not published any opinions on the propriety of pre-bankruptcy exemption planning. Read the opinion before you try to invest money in your own homestead and file bankruptcy; make sure the facts in this case a similar to your own situation before you plan to rely on the opinion.

http://www.uslaw.com/library/Bankruptcy/PreBankruptcy_Planning_Court_Allows_Large_Cash_Investment_Homestead_Sa.php?item=382141

[HHM]

I am expecting to receive a substantial settlement from bankruptcy. Possibly 50-100k. I wanted to see if I could use the money to put towards my house payment which is an exempt item. Do you think the trustee would object? To me its similar to purchasing a car and then filing. I would wait to pay the mortgage with the settlement prior to filing. I have debts exceeding $200k

Yes, the trustee will object. It really is quite hard to have your cake and eat it too in bankruptcy

First, you need to figure out if any part of the settlement is exempt.

[svanlaw1]

I will wait 6 months so it does not throw off my income. Thank you for the case, I will review the case.

[svanlaw1]

I live in nevada the exemption is close to 20k here.

[svanlaw1]

Caselaw supporting my position

286 b.r. 756

[StartingOver08]

I wonder if BAPCA hurts 286 b.r. 756 ?

[Trixie007]

It really is quite hard to have your cake and eat it too in bankruptcy

That really sucks, cuz I like cake.