Judgement Proof Question-LONG

[sisterfunkhaus]

I've been reading the NOLO books. I've read one about general BK, and one about Chapter 7. I haven't gotten to the 13 yet. I read a lot of info about being judgement proof. The author said that if your property is exempt in your state under BK laws, that unsecured creditors can't take exempt property in court if you aren't paying your bills and don't file BK. This doesn't sound right to me.

I live in Texas so pretty much everything I have is exempt under BK laws. Wages cannot be garnished except for taxes and child support. We (DH and I) own a house (with about $20k in equity which is exempt.) We have never been late on a payment. We also have 2 cars that are paid in full-both exempt under Texas law. I have $7000 in jewelry and WAY less than $60,000 in property-all supposedly exempt. We have $80,000 in SL debt which is non-dischargable. We have about $80,000 total in unsecured credit card debt and a medical loan that I got for obesity surgery. $20,000 of the cc debt came from me charging medical bills having to do with child birth, gall bladder surgery, and meds for me having Lupus. I know they can freeze our bank accounts if they get a judgement, but there's hardly anything there. DH makes about $40,000 per year. He has a teacher retirement account--which is exempt. My income goes up and down b/c I do home child care. Now, I'm making $1960 a month. But, I have a family who is moving, which will make me lose $780 of that. Business is VERY slow around here. Many have gone a year without filling daycare spots. Everyone is having problems getting daycare kids. So, we will be short on bills by about that much. I don't know if we will have to file BK, but I do know that as of right now, we cannot afford to pay all of our bills. We can afford to pay our mortgage, student loans, bills, and a couple of CC. Living even a few months this way will put us so far behind that we can't get out of the hole. And, we have one child, so we are a family of 3.

Anyway, here are my questions-

1. Am I understanding correctly that if a property is exempt under BK laws that unsecured creditors can't get a judgement on it for not paying bills?

2. If I am misunderstanding, about how long will it take before they sue us and put a lien on our house/cars/bank account?

3. Could we have the liens removed in BK court if we filed after a lein was placed on our home by an unsecured creditor???

I am trying to prepare. We have never made late payments in our lives. But, we have been living on the edge for a while now. We barely scrape by each month and have always been a paycheck away from falling off the edge. I think we may be falling now I'm not stressed about it b/c I always felt that we would fall sooner or later. I just want to really prepare myself and know when to file should the need arise.

[sisterfunkhaus]

Any advice on how I can get these questions answered besides a lawyer?? We aren't ready for that just yet. We want to try to make it, but if we can't pay bills, I want to know the answers to these questions. I need to know if an unsecured creditor can out a lien on our house if it is exempt in our state. I've been lurking on here for a while and haven't been able to find an answer. I'm really nervous about our financial situation and just want to know hard facts so that creditors can't "get to me" . I appreciate any help and am so thankful for all of the great ideas I've read on here so far.

[GoingDown]

"The author said that if your property is exempt in your state under BK laws, that unsecured creditors can't take exempt property in court if you aren't paying your bills and don't file BK. This doesn't sound right to me."

The author is correct. If your property is exempt under the BK laws of your state, then the judgment creditor CAN'T take your property, even if you don't file for bankruptcy. However, you will have to be prepared to file the necessary paperwork in your county to claim your property as exempt, and be prepared to defend it with evidence proving that your property is really exempt. I don't know about the laws of Texas, but, for example, in Arizona, up to $5000 of equity in one car is exempt. But if your car has $6000 of equity (the Kelly Blue Book Value of your car minus the amount you owe for it to a car loan company), the judgment creditor could seize it and try to auction it off. They would have to get enough money from the auction to pay off the car loan on the car plus the $5000 exemption amount (that money gets paid to you after the auction sale) before they would get any money to pay off the judgment. It's very expensive for them to do that, so unless they feel they can get a lot of money for the vehicle, they probably won't do that.

"Anyway, here are my questions-

1. Am I understanding correctly that if a property is exempt under BK laws that unsecured creditors can't get a judgement on it for not paying bills?"

Wrong! Being Judgment Proof has nothing to do with preventing them from suing you. Judgment proof simply means that after they sue you, they won't be able to collect from you because you don't have anything to take, or anything that is not already exempt from them.

"2. If I am misunderstanding, about how long will it take before they sue us and put a lien on our house/cars/bank account?"

They can file a lawsuit at any time, but they typically don't sue until they reach the point of "Charge Off", which may give you six months of not paying the bills. Sometimes they wait a lot longer than that, as long as the Statute of Limitations has not expired (sometimes years before they file a lawsuit!) and the accounts get passed around from collection agencies and eventually to a collection attorney who then files a lawsuit against you. But sometimes, for large debts, the original creditor will file the lawsuit against you right after Charge Off.



"3. Could we have the liens removed in BK court if we filed after a lein was placed on our home by an unsecured creditor???"

Yes the liens can be removed and the judgments can be avoided (or vacated), but it will probably require the help of an attorney to do that, so that will make it more expensive for you in the long run.

According to what you have told us, you might be able to simply do nothing about this, since you seem to be judgment proof. Make sure that you fully understand exactly what is exempt and what isn't exempt so you don't get a big surprise from the creditors. Start using cash (money orders for rent and electric bills, etc.) and stop using checks, debit cards, credit cards, etc. But keep receipts just in case. If you have any investments-- stocks, bonds, etc., you might want to cash them out and store the cash someplace safe in your house or convert the money to something like money orders and travelers' checks.

Keep in mind that it will ruin your credit for a long time, and judgments remain effective and valid for many years, and sometimes indefinitely, and so the collection attorneys may be calling you and doing such things as "debtor exams" (where they call you in to court to answer questions about your assets and income under oath and penalty of perjury) from time to time for many years to come.

On the other hand, sometimes bankruptcy can be a nightmare for some people and drag on for month after month, and you won't know whether your debts will get discharged until it's finally over. And they will want to know all about your finances and etc. for the last few years (that's why I won't file for bankruptcy until the look back period has expired for a few years).

Go see a few bankruptcy attorneys for a free consultation before making any decisions about this.

Since you are barely scraping by, you might need to consider downsizing everything possible in your life-- a cheaper car, a cheaper house or try renting something cheaper, get rid of anything not necessary such as cable television, subscriptions, etc. And you'll find that as you pay for everything with cash from now on, you won't buy as much stuff. That's what I have noticed. I think twice and often three or four times before I make any purchases anymore. I'm saving a lot more money than I ever did when I had credit cards. I've become very cheap.

[sisterfunkhaus]

Thanks for the advice. You idd answer all of my questions. I REALLY appreciate it!!!!
In Texas, cars are exempt. There is no amount for exemption. They specify one car for each adult. We have older cars that have been payed off for a while. They aren't worth that much. They are, however, very dependable, THANK GOODNESS I think that we would want to out off BK for a while and the tips that you gave for living in the mean time are GREAT. So much of what we have is exempt that it does appear that we may be JP. Seems too good to be true. If we ever file though, we will use a lawyer for sure. I think if we filed, it would be to get that fresh start and start rebuilding. We will need a new car some day. So, I think in that case a BK would be better on the credit.
Once again, I really appreciate your advice. TY for taking the time to read through all of that.

[GoingDown]

Any advice on how I can get these questions answered besides a lawyer?? We aren't ready for that just yet. We want to try to make it, but if we can't pay bills, I want to know the answers to these questions. I need to know if an unsecured creditor can out a lien on our house if it is exempt in our state. I've been lurking on here for a while and haven't been able to find an answer. I'm really nervous about our financial situation and just want to know hard facts so that creditors can't "get to me" . I appreciate any help and am so thankful for all of the great ideas I've read on here so far.

The answer varies from state to state, but generally, once they get a judgment against you, they can have a lien recorded in your county against any and all real estate, so that as your house increases in value, and your equity increases beyond the exemption amount, the lien attaches itself to your house, and then when you go to sell your house, the lien or liens may have to be paid off before you will realize any profits from the sale.

The exemption merely prevents the judgment creditor from seizing your house and selling it out from under you, if your equity in the house is less than the exemption amount. If you have a lot of equity above the exemption amount, the judgment creditor could seize your house and sell it, but they would have to pay you the exemption amount before they could get any profits from the sale of the house.

That's why renting a house is better than owning one, if you want to be fully judgment proof.

[sisterfunkhaus]

Texas has an unlimited exemption as long as it's under 10 acres. Texas laws seem very generous.

[GoingDown]

Texas has an unlimited exemption as long as it's under 10 acres. Texas laws seem very generous.

Sometimes, I wish I lived in Texas. It seems very debtor-friendly.

[FoolAndHisMoney]

Sometimes, I wish I lived in Texas. It seems very debtor-friendly.

Yeah, some of the southern states have much better exemptions then the northern states. The supreme court ruled that while bankruptcy must be administered by the federal government states were allowed to create their own exemptions. The southern states gave more generous exemptions to their wealthy debtors to avoid paying the north any debts owed after the civil war and still keep their homes and farms.