consumer vs. non-consumer Ch 7

[sillywalks]

I have 2 homes -- a primary home that I plan to keep, and a second home that will be going back to the bank.

The first home has a mortgage of around $190K ($125K was borrowed from my inheritance for the down payment, I refinanced to pay for finishing the basement). The approximate value in this market is probably around $190-$200K -- possibly $210K.

The second house has a mortgage of $158K. I put $50K in upgrades/repairs/improvements into the home ($25K of which were unexpected). The home now has foundation damage and other problems that would make it tough to sell in a great market -- and the market here is terrible. Similar homes (minus the problems) in the area have gone for $90-$120K. I was offered $90K for a short sale for the house.

I also have approximately $20K CC debt, and I owe my mom $25K (used to repair retaining wall at second house).

When figuring consumer vs. non-consumer do I use both houses? Or just the one I want to give back?

I.E. -- $158K + 20K CC + $25K mom = $45 unsecured debt, $158K business debt (rental house) = Non-consumer Ch 7.

or -- $158K + $190K + 20K CC + $25K mom = $32K greater owed on first house plus $45K unsecured = consumer Ch 7?


Any help?

[biotechsolution]

since your first mortgage plus your credit card debt and your mother's 25k equal more than the mortgage on the rental you're not going to make a non-consumer bk. Plus unless you're in a state with a very high exemption for your house you're going to have problems.

[tcreegan]

Hi SillyWalks,

If everything is in your name, personally, and not listed with a business or corporation, you will be consumer.

You should go online and find a means test calculator and see if you pass the means test. This should be step one, you can worry over consumer/non-consumer later.

Some other worries, does Mom have a lien perfected on the 2nd house? If not, she is an unsecured creditor. Do NOT pay her any extra pre-BK, that would be an insider payment and the trustee will want it back.

To keep the 1st house, you are going to need to do a reaffirmation agreement with the lender. Start talking to them about the BK filing and getting set to ink a reaffirmation agreement. You may have problems trying to get a lawyer or judge to sign-off on a mortgage at value w/ no equity. So ask the lender if you can do a "retain and pay" or ink an agreement no matter what the BK court decides.

Warning: reaff. agreements are voluntary, the lender does not have to do them. Debtors can rescind them within 60 days. The terms may change, read your documents carefully. You are legally liable for the debt, if you default later, and the foreclosed house sells at auction for less than the loan amount, you are liable for the difference. Standard warning for reaff's

Good luck with all this, hope you have a good attorney!

Tom in Colo

[sillywalks]

replies

Thanks biotech and tcreegan.

I do pass the means test -- I have done it with multiple different scenarios, and I always pass (usually with negative something left over at the end of the month).

Regarding keeping the house -- will it make a difference to the Judge that I have started renting out the basement, which provides income and reduces the cost of the house? (in terms of keeping the house)

Regarding the money I owe my mom -- I don't know what is required to 'perfect' a lien. My mom and I have a signed agreement regarding the money being a loan from my inheritance...I just don't know if that is enough.

It is possible to keep a house through Ch 7? It seems like what is being said is if I have equity, they want to sell the house -- but if I don't have equity, they won't want me to keep it??

I was thinking about talking with my lender (US Bank) about modifying the mortgage (maybe a 40 year and/or lower interest rate?) -- but I don't know if I should do that before I file BK, because won't that impact my ability to file Ch 7? I do not have a problem reaffirming the mortgage. I do not plan on moving in the next few years (I have a stable job, furloughs notwithstanding) and I believe the value will come up enough to make staying worth it (since the basement was finished and that cost was not included in the mortgage).

Oh -- the GA exemption is $10K (which ain't so good!).

Thanks!

[BCA2009]

What state are you in? Some states have unlimited home exemption. (Florida).

If that is the case then the "inheritance loan" would not be a an issue when calculating the equity in the house.

How long ago was this loan made? I'm thinking (guessing) that the money from mom is not a loan but rather it was a gift (legally). Do you make monthly payments? Is there a stated interest rate?

If you qualify as a consumer chap 7, I wouldn't worry about the non-consumer issue.

But you need a good attorney to help you with the equity/advance inheritance issue.

[sillywalks]

ga ch7

BCA --

Thanks for your response. The loan was made in 2006, and I have not made payments. The agreement I signed basically says if I sell the house, then the money I borrowed from my inheritance will go back to my mom (assuming she is alive at the time).

I hear what you are saying about getting an attorney to discuss the equity/inheritance issue. I am going to do that -- I am trying to get as much info as I can before I see someone, so I will have clear, direct questions to ask specific to my situation!

I'm curious why you don't think the inheritance issue will come into things because of GA's small equity exemption? If I owe $190K to the bank and $125K to my mom, there is NO equity. Heck, there might not be any equity anyway, with the market in my area!

[sillywalks]

Never mind about the exemption/inheritance question! I reread what you wrote and realize you meant that if GA had unlimited home exemption then the inheritance thing would not be an issue. Sorry I misread it!

[BCA2009]

That sucks that GA has low homestread exemption. Hopefully a local lawyer will have a better insight than I do. But it's going to be an uphill fight to treat the monye from your mom as a loan. You and her might be able to rationanlize it as a loan, but it was really an advance on you inheritance. You are admitting that you would never have paid it back unless you sold the house. It will be hard to convince a trustee that it is a real loan secured by the house.

Good Luck!

[SweetGeorgia]

We are a non-consumer Chapter 7, and I thought the only benefit of being non-consumer was that the means test didn't apply. If you pass it anyway, though, then you're OK and good for Chapter 7, right?

I do know that "non-consumer" debt does not have to be secured debt. For example, when your bank forecloses, sues you for the deficiency, and gets a judgment - that's unsecured debt. But if the property was business property, it's non-consumer debt.

If you count 158K mortgage + 25K mom debt + 20K cc debt as business debt, then it's 203K. (Did you use the credit card for building supplies?) More than your home mortgage, so non-consumer Chapter 7. But if you qualify with the means test anyway, then don't worry about it.

Talk to an attorney because it sounds like you really only have the credit card debt to worry about (in terms of litigation). In Georgia, banks almost never seek deficiencies on single-family homes. Your mom isn't going to sue you. Is the credit card alone worth filing bankruptcy over? I don't think much of debt settlement, but Chapter 7 is valuable and you might need it more later.

[tcreegan]

Hi Sillywalks,

I was thinking about talking with my lender (US Bank) about modifying the mortgage (maybe a 40 year and/or lower interest rate?) -- but I don't know if I should do that before I file BK, because won't that impact my ability to file Ch 7?

Talking has no impact, signing something does. I think it is important to let them know you are going to file, want to reaffirm, and start negotiating. Prevents some knee-jerk reaction if they get your BK notice out of the blue.


Oh -- the GA exemption is $10K (which ain't so good!).

Exemption would only apply if you had equity.



As to your two loans from Mom......
I was thinking about the perfecting the lien bit...that makes Mom a secured creditor on the house. On the second house, she is not going to see a dime given the value of the house and the amount of the mortgage. On the first house, she also is not going to see a dime, not for years until the market value goes up and you pay down the mortgage.

You might want to talk to Mom's attorney.....if she stays an unsecured creditor, she stands to take a $150 loss. This could have some serious tax advantages.

And nothing stops you from paying her back voluntarily or having the amount cut out of your inheritance.

Something to think about....

Tom in Colo

[sillywalks]

paying mom

_Talking has no impact, signing something does. I think it is important to let them know you are going to file, want to reaffirm, and start negotiating. Prevents some knee-jerk reaction if they get your BK notice out of the blue._

Good advice, thanks.


_As to your two loans from Mom......
I was thinking about the perfecting the lien bit...that makes Mom a secured creditor on the house. On the second house, she is not going to see a dime given the value of the house and the amount of the mortgage. On the first house, she also is not going to see a dime, not for years until the market value goes up and you pay down the mortgage.

You might want to talk to Mom's attorney.....if she stays an unsecured creditor, she stands to take a $150 loss. This could have some serious tax advantages.

And nothing stops you from paying her back voluntarily or having the amount cut out of your inheritance.__

I will definitely pay her back the $25K regardless. And if I am not able to pay back the mortgage loan, she will reduce my inheritance by that much.

If the money she loaned me was for the house (which it was), but she would not get the money back until the house was sold (which is set out in the contract) -- would that not make it a lien on the house? Why would the court not see it as legitimate?

I will definitely talk about the possible tax benefits for her -- that would be great!

k

Something to think about....

Tom in Colo[/QUOTE]

[sillywalks]

cc and deficiency

We are a non-consumer Chapter 7, and I thought the only benefit of being non-consumer was that the means test didn't apply. If you pass it anyway, though, then you're OK and good for Chapter 7, right?

I do know that "non-consumer" debt does not have to be secured debt. For example, when your bank forecloses, sues you for the deficiency, and gets a judgment - that's unsecured debt. But if the property was business property, it's non-consumer debt.

If you count 158K mortgage + 25K mom debt + 20K cc debt as business debt, then it's 203K. (Did you use the credit card for building supplies?) More than your home mortgage, so non-consumer Chapter 7. But if you qualify with the means test anyway, then don't worry about it.

Talk to an attorney because it sounds like you really only have the credit card debt to worry about (in terms of litigation). In Georgia, banks almost never seek deficiencies on single-family homes. Your mom isn't going to sue you. Is the credit card alone worth filing bankruptcy over? I don't think much of debt settlement, but Chapter 7 is valuable and you might need it more later.

I do pass the means test, but it would not hurt to hedge my bet (by filing non-consumer).

I do have the credit card debt, but the only reason (the real reason) I am filing is because the bank that holds the mortgage has a firm policy of pursuing a deficiency. The bank that was assigned the loan (the original bank was closed by the gov't) is actually in South Carolina, not GA. I anticipate a deficiency of between $50-80K, maybe more (due to the market and problems with the house).