Debt is starting to Snowball~House on Market and Not Sold Yet!

[fltoo]

Please listen to what the posters said here about your equity. In Texas, the bankruptcy court can NOT touch the money in your house if you are living in it.

Once you sell your house and have cash, they can come after the cash.

As far as capital gains tax, there is none on the profit from your house. All the money is yours tax free if you have lived in the house for 2 years in the past 5 years. You do not need to buy another house to protect your gain.
The laws changed over 5 years ago to allow homeowners to keep all their profit on the sale of their house.

You need to see a lawyer ASAP before you accept that contract on your house.

[tika]

How much in credit card debt do you owe?

roughtly about 60K in debt.

[Frogge]

roughtly about 60K in debt.

Ok, honestly - I can't imagine any good outcome from selling the house right now when you are that much over your head. Justplaintired makes an excellent point, you're certainly not saving your credit. I think you know all this already. Please think about what we've said. Good luck.

[ThreadsSnapping]

I agree, cancel the sales contract and get the house off the market.

If you sell the house now, you will still have about 15K in credit card debt, no house and no cash. If you file bk after selling the house and paying off creditors you would have to wait 6 months to file bk if you needed to so you can avoid any preferential treatment issues.

You will not be able to get a loan for another house right now with 60K in credit card debt so that part of your plan is not an option. Even if you did have the 45K down payment, just ain't gonna happen right now. Sorry.

If you file bk and then sell, you have your cash from the equity and no debt.

TS

[JRScott]

With 60k credit card debt I think it will be hard to get a new home loan, many institutions have tightened incredibly their lending standards.

It might be in your best interest to withdraw from the sale. If you qualify for the TX homestead exemption you might be better off filing bankruptcy now keep the home and get rid of the unsecured debt. To determine if this is the best solution though you probably need to seek competent legal advice and I'd suggest 3-4 consults with local bankruptcy attorneys. The key here is the homestead exemption if you don't qualify for it then this won't work. (I'm not sure of the requirements in TX to qualify for it).

If you do sell the house, you will probably need to resign yourself to renting rather than owning in the coming few years. Also selling the house now means you will not be able to file bk for probably several months maybe a year or more (depends on how you qualify for homestead in TX). If you chose this path what I would do is take half the money from the proceeds and pay down the credit card debt. I would then place the remaining half of the proceeds into Money Market (1/2), Checking (1/4) and Savings (1/4). I'd use the checking account to get the rental. I would not touch the savings or money market unless there is an emergency (as you'll need some of this to pay taxes on the proceeds). Then find the cheapest rental you can that meets your family needs, look for functional not extravagant. Ideally the rent should be lower than your house payment or this probably won't work. Take the difference between the current house mortgage and the rent and apply that to paying down the credit cards. At this point you should owe about 40k in credit cards assuming 40k proceeds on the home and 20k put to the cards. That's about 1200 min. payments each month on just the credit cards. You need to pay more than that though, I'd aim to pay 50% more say around 1800 a month, pay the minimum on each card and then apply the extra money to the card with the lowest balance each month until such time as that card is paid off then move up. It will probably take you 2 to 5 years but you could probably pay off the debt and improve your credit report such that you could qualify to buy a new home again without a bankruptcy. (The greatest problem with this plan is you need income sufficient to do it which I can't be sure you do).

If you sale the current home and decide to buy a new home, keep in mind you will need to live in the new home long enough to qualify for the TX homestead exemption prior to filing bankruptcy. (I'm not sure with 60k credit card debt though you'll be able to get a new home unless you can buy it outright).

[BKParalegal]

In most states the equity in the house and/or the net proceeds from the sale are exempt for 6 months after the sale. One option you do have also, if you sold the house is to negotiate debt settlements with your credit cards. I have done hundreds and without blinking most will take 50% on the dollar, and with shrewd negotiating, you can get them down to 20% to 30%, I also request that they don't report a charge off to the credit companies and to not 1099 the client. It doesn't always work, but it doesn't hurt to ask.

Good Luck

[tika]

Wow....I have a lot to figure out. I guess the First step is to talk to a Lawyer. I guess I will be making an appointment with a few starting monday. I will post what I find out just so if anyone is in a simular situation they can learn from me since this forum is where I came to learn from everyone else. Thank You all so much for posting your ideas and advise!

[JRScott]

You're welcome and good luck

[tika]

Just a little updates since my last post on the above......

We got an offer and sold out home and walked away with 41K in equity. Since our credit was terrible, we considered renting a home while in the waiting period of the sale of our home we found a rental and just out of the blue we asked the owner if he would sell his home to us and even if he would also Owner Finance for us.....and believe it or not he said YES!!!

So we put $16,500.00 down and drew up a contract with a lawyer so he is our "lender" and we are on the title with 8.75% interest. he is going to Owner Finance for us for 3 years and if we needed to extend it he will go for another 5 years!

Then we (or my husband before we met) owed $17K in back child support and in order for us to ever get our home in our names "officially" we have to pay back the back child support, so we did and with the little of the money left over we had to pay for the move and do a few things around the home to get us in like fix the garage door, replace the kitchen sink, get another stove, etc....(pay for the lawyer).

Now 4 months later we are filing BK Ch 7. Lawyer says we did everything right, I feel confident since our lawyer has been doing this for over 35 years. Wish me luck....

The only thing that I need to know is how do I tell the gentleman that Owner Financed for us that we are filing??? Knock on his door?? Write a letter?? I want him to hear it first from us since he is going to find out very soon.....