Paying off unsecured debt pre-bankruptcy

[badhouse]

My debt problem is my underwater home. My usecured debt is limited to $1200 dollars in Credit Card debt and a $1200 personal loan I owe to my Father. I just recieved a $2,500 profit sharing bonus. Can I pay them both off? I am worried because my home is underwater and thus not entirely secured that this might be considered a preferential payment. Any thoughts?

[keepmine]

If you're filing bk, you may as well include the cc because, once the public record hits your credit report, your cc issuer will more than likely close your account.
If you intend to file soon, don't muddy the waters by paying back an insider. Post bk, you can repay anyone you please. Wait until after your discharge and pay your father.

[badhouse]

Yeah, I don't care about the credit card or my credit score for that matter. it simply strikes me as an act of bad faith to recieve a bonus and not attempt to pay creditors with it prior to filing bankruptcy.

[Shawshank]

Protect the money with exemptions or spend it appropriately on groceries, etc... You can pay back anyone you want after discharge.
Absolutely do not payback your father before discharge.

[keepmine]

For sure don't pay your father back until after discharge. If you do so within a year of filing, the trustee could sue your father for the funds.
That's what I meant by suggesting you not muddy the waters.

[badhouse]

Cool. I don't want to pay either of them. My dad is in no hurry for the money. I was just worried that sitting on an unexpected windfall might be viewed as bad faith. I am sure I am overthinking all this.

[Dannmcg357]

Cool. I don't want to pay either of them. My dad is in no hurry for the money. I was just worried that sitting on an unexpected windfall might be viewed as bad faith. I am sure I am overthinking all this.

Funny how the law works at times, sometimes ethics are a matter of perception. By that of course I mean it depends on who's point of view. Certainly the cc company would see it your way lol. Also consider if you pay the cc balance, you will have that much more disposable income on your means test.

[LSUTiger32]

Wait a second I am confused here. You have enough money to pay off all debt except for the house that you are upside in and you want to file BK?

No way jose!!!! Pay off the debt with the cash and then either do a short sale or let them take it. A short sale would be ideal, but even a foreclosure would be better than a BK on your record.

[Dannmcg357]

If a short sale is going to bring a JD then IMO waiting to get sued is not viable. Is that all you got badhouse?

[badhouse]

Wait a second I am confused here. You have enough money to pay off all debt except for the house that you are upside in and you want to file BK?

No way jose!!!! Pay off the debt with the cash and then either do a short sale or let them take it. A short sale would be ideal, but even a foreclosure would be better than a BK on your record.

Short Sale is the route I am hoping to take but I need to be realistic. The vast majority of them fail. I have had 1 person look at my house after a month on the market at aggressive pricing. Furthermore, I have a stable job and income and a high fico score. The bank just doesn't believe I will default and has told me as much. I could stop paying and show them I am serious but 90 days of not paying will devastate my credit score as much as a bankruptcy.

Truth be told, I couldn't possibly care less about wrecking my credit score, but If I am going to wreck it, I might as well do it via a strategic bankruptcy and live rent free for a year or more. Straight foreclosure is out of the question. When my 2nd gets wiped out they can wait 6 years to sue me on the deficiency. Best to just take my medicine now and wipe the slate clean.

[LSUTiger32]

Short Sale is the route I am hoping to take but I need to be realistic. The vast majority of them fail. I have had 1 person look at my house after a month on the market at aggressive pricing. Furthermore, I have a stable job and income and a high fico score. The bank just doesn't believe I will default and has told me as much. I could stop paying and show them I am serious but 90 days of not paying will devastate my credit score as much as a bankruptcy.

Truth be told, I couldn't possibly care less about wrecking my credit score, but If I am going to wreck it, I might as well do it via a strategic bankruptcy and live rent free for a year or more. Straight foreclosure is out of the question. When my 2nd gets wiped out they can wait 6 years to sue me on the deficiency. Best to just take my medicine now and wipe the slate clean.

I have to one million percent DISAGREE with you. Short sales are happening out there like they are going out of style. If you have only had one person look at your house, the price is too high. Stop paying the payment and the mortgage company will figure it out really quickly. The notion that a few late payments will hurt your score as much as a bankruptcy is borderline insanity!

Why is straight foreclosure out of the question? Even a foreclosure is much better on your record than BK. I still don't quite get this though. Can you make the house payment? Sounds like you want to get rid of the house because you are upside down on it not because you can't afford it. You will get to live rent free for quite a while if you just stop paying the payments also. However, that is not something I think you should do if you can make the payments but you are mad because the economy has made you upside down in your property.

To file BK on a house when you have nothing else makes no sense whatsoever. There are much better options for dealing with the house.

[lovebirds]

Does your state allow deficiency judgements for mortgages?

[PoorGrammyinBK7]

I agree with LSUTiger32 - at least with the info you have given so far. Are you struggling to make the payments? Can you rent for about the same - or less? Are you willing to downsize if not? How much are you upside down on the house? Short sales do happen, all the time - it just usually takes a while, but there are new rules coming to hopefully make the process faster. I sure wouldn't BK it yet - please check out all your options!

[badhouse]

i am 40% underwater. I could rent a very similar place for half what I am paying the bank. It just doesn't make any sense to keep paying the bank at the expense of my financial future. Keeping the house is not an option. I don't care how affordable it is within the confines of my budget. There are much wiser uses for that money

Again, I agree with the sentiment that BK should not be my first choice. I am trying the short sale route but if that doesn't work, (let's face it the odds are against it in light of two mortgages, no financial hardship beyond the declining value of the home and a real estate market with virtually zero buyers). Bankruptcy is the next best option since I can be sued on the deficiency for up to 6 years after the foreclosure date. I am not rushing into bankruptcy but I definately want to get my ducks in a row and have my petition ready if it becomes clear that a short sale isn't going to work.

[badhouse]

I have to one million percent DISAGREE with you. Short sales are happening out there like they are going out of style. If you have only had one person look at your house, the price is too high.

I hope you are right. I would much prefer this option.

I agree with you that the price is too high. My neighbor has his identical condo up for sale too. He showed me the BPO Bank of America (also my lender) gave him. I priced my unit 10% below that number. That BPO was unrealisitc and I will lower my asking price after allowing it to sit on the market ofr a ittle longer to prove to the bank that its assumptions are wrong. I personally think the bank is just screwing with us and deliberately ordered a high BPO to discourage the sale.