Possible CH7 Strategy? (Pre-paying rent)

[Diesel73L]

Some of you may have read my post about my in-laws situation in the general BK forum. I've been trying to come up with some possible strategies to help them, one of which would be CH7-the problem is the equity in their home. My MIL claims they owe about $80K on the house, which, I'm betting, would sell for a maximum of $200K in this market, leaving $120K in cash. They can exempt about $25K of that through the federal homestead exemptions plus the wildcards, but that still leaves about $90K exposed. Would it be possible for them to sell the house, and then take a large portion of the proceeds to pay say 3 years worth of rent to a landlord up front before filing?

[LadyInTheRed]

I doubt that will work. If I were the trustee, I'd say that the advance rent payment is an asset. Even if it weren't, the fact that they won't have to pay rent for the next 3 years may make their schedule J expenses too low and cause an objection to Chap 7 discharge based on totality of circumstances.

If your in-laws are willing to give up their house, they should sell it, default on their debt and then negotiate settlements with the creditors (or just pay the debt), give up the car lease and buy a reliable used car outright.

[tobee43]

i can tell you what we did.

we couldn't sell our home. it had been on the market over 2 years and not one bite in nj. when we lost our jobs we were also working on a loan modification. in the meantime we were saving everything under the mattress. we kept min payments up on our charge accts but we had reasons, most people just let those payments go as well when preparing to make a strategic move.

when we got some cash up we took off from nj to florida, we secured a place in FL with cash if i recall corrected we paid at least a year in advance, but could trust this person since it was a distant family member. even tho we paid in advance i kept paying monthly that way i had some accurate
paperwork i could submit when we actually filed our bk. also we were lucky to have a family member rent to us, but it still didn't matter since our credit wasn't horrible yet. of course had we waited a year down the road it would have been too late, and i think we could have been hard pressed to find a place that would have accepted us.

i think it's a good idea to secure a place, also don't leave money in the bank at all ;other than the minimum they need to make essential payments. we kept a small amount in the account, just enough to cover our monthly expenses and we were never asked what happened to the rest since our bank statement were consistent. we also that way were able to begin to establish residency in fl so we could file here.

but i think i'm getting a bit ahead of things. first you need a plan.

[jst4f]

I know you are trying to come up with options and seeing if they are OK but this one I think could be viewed as fraud. The TT would want to know what happened to the profit from selling the house and if s/he suspect you are hiding money s/he will want receipts down to the penny. TLITR has the better approach.

[despritfreya]

Fraud issues aside, the advance payment of rent won't work. The Trustee will simply reject the residential lease under 11 USC 363 and demand turnover of all advanced payments.

I like LITR's suggestions.

Des.

[LadyInTheRed]

Just so there is no misunderstanding by anyone reading this thread, when you file BK, all of the cash you have on the date you file must be reported as an asset, wether it is under your mattress or in a bank account.

[bcohen]

It sounds like selling the house and/or filing for bankruptcy are NOT in their best interest. They would be better off simply defaulting on the debts if they can no longer pay, and letting the creditors sue (or not). Remember that outside of bankruptcy, one has much more latitude with regard to hiding assets from creditors. In other words, preferential transfers which could be clawed back by a bankruptcy trustee are often out of reach to creditors who simply sue in circuit court.

[keepsmiling]

If both inlaws are alive, they double the exemption so it's 46K. plus you may be able to stack a wildcard.
Still not enough but we're getting closer
I don't suppose there is a fixer upper nearby they could snag cheaply? (cheap is hard to find in NJ)

[bcohen]

I guess the real question is whether under NJ law, a creditor who succeeds in obtaining a judgment lien against a primary residence can foreclose said lien, or instead must wait for the homeowner to sell or refinance in order to collect. I am not very familiar with the laws in this regard, because I do not own--and have never owned--a house, so this was not a concern for me.

[anykey]

are you using the state or federal?

Dont forget- you have to fill out that form which is a budget form.

[keepsmiling]

Nobody in NJ uses the virtually non existent state ones.

[LadyInTheRed]

Remember that outside of bankruptcy, one has much more latitude with regard to hiding assets from creditors. In other words, preferential transfers which could be clawed back by a bankruptcy trustee are often out of reach to creditors who simply sue in circuit court.

Not necessarily true. State laws do exist making it fraudulent to transfer your assets to others to avoid creditors. Creditors can have fraudulent transfers voided when there is no bankruptcy. Here's relevant portions of New Jersey's fraudulent conveyance law: http://law.onecle.com/new-jersey/25-...nces/2-27.html

http://law.onecle.com/new-jersey/25-frauds-and-fraudulent-conveyances/2-29.html

http://law.onecle.com/new-jersey/25-frauds-and-fraudulent-conveyances/2-30.html

If you have non-exempt assets in excess of your debts, the law pretty much requires you to pay your debts and allows creditors to place liens on your assets if you don't pay voluntarily.

[anykey]

Nobody in NJ uses the virtually non existent state ones.

That sounds like PA