Is repairing your home a qualified expense prior to BK?

[MarieT]

We have discovered that we will have to spend about $7,000 to take care of a water problem in our basement. We actually have most of the cash on hand to cover this but my husband is really concerned that if we go ahead and get it done and then file BK that the trustee could go after the company doing the repair and take the $7,000 away and then the repair company could put a lien on our house. We're planning to probably file BK mid-July. We have to wait that long for a big one-time payment to fall out of our income. (that's where most of the money to repair our house came from).

[SMinGA]

Needed home repairs should not be a problem. I would say though, before scheduling the work, to consider whether or not the home is worth it? I mean, assess your mortgage payment(s) - can you reasonably afford them after the bankruptcy? And are you terribly upside down?

Just seems to me you should be certain you are fully capable and willing to keep the house before putting that kind of money into a repair.

[MarieT]

We owe what the value is or the house might be worth a bit more than what we owe but we are committed to keeping the house. I worked on getting a loan modification all through last year and finally had it made permanet at the beginning of the year so that will help us out substancially. We truly believe that in a couple years the market will turn around and we are planning to sell it in maybe 10 years.

[HHM]

I don't see a problem with that expense...the key with repairs is whether they are necessary for health and safety.

As for home prices turning around in 10 years, fat chance, we are going to see an extended time of housing stagnation.

[MarieT]

It is definitely a health and safety (repair/maintenance) issue...not a home improvement. Who knows what the market will do in ten years but I guess we will find out. Thanks for your help!

[JackBondLove]

Needed home repairs should not be a problem. I would say though, before scheduling the work, to consider whether or not the home is worth it? I mean, assess your mortgage payment(s) - can you reasonably afford them after the bankruptcy? And are you terribly upside down?

Just seems to me you should be certain you are fully capable and willing to keep the house before putting that kind of money into a repair.

It seems that the question about whether the mortgage payment is affordable is moot here. Irregardless of what the OP would do, the mortgage payment would be the same. The OP could not even pay down the mortgage with that cash as it would be a payment to a preferred creditor. I will presume that the OP was thinking about filing Chapter 7 with this cash in the bank (in which case it would be confiscated), or living off that cash (or perhaps using the cash to other equally needed maintenance to to spend on living expenses, etc.) It does not matter - at the time of filing, whatever the OP owns in non-exempt assets will be the property of the BK estate, period.

Now as for whether it would be a prudent idea to spend such money, the answer is yes. Needed home repairs are certainly considered as a necessary living expense, and not frivolous in the least - in the eyes of the BK Court, they are as essential as medical needs. I myself had a few extra $K lying around that was going to go to the BK estate, but I had issues with my newly bought house (issues that were detailed on the home inspection), so I spent that last bit of cash I had on those repairs.

I also had wanted to do some home improvement. I consulted with my attorney, and he told me that it would not look good in the eyes of the trustee to spend such money on out and out improvement, but it would not be a problem at all to spend money on fixing any existing problems. Now in my case, I had a contractor do part of both, so I had to have him separate the job into 2 parts - one to fix the immediate problem, and one to do the improvement. Of course, it helped that he knew that when he was doing the problem fixing that he would be doing the improvement right after, and that helped to save a little money on the improvement. I had him do the fixing part BEFORE the filing, paid for with cash I had on hand (that would have gone into the BK estate), and then do the improvement part AFTER the filing, with cash I had by taking a distribution of a small Roth IRA right after the filing.

[MarieT]

We will definitely be paying for the repair work before filing which will probably be in July...hopefully we will be able to get the repair work done by the end of this month. Thanks for your answers!