Personal Bankruptcy Couple questions

[jetliner2]

Let me skip all of the backstory and get right to the important points. What we have here is a married couple who are splitting up. the house is about $75,000 upside down, and neither can afford it alone. The plan is they will each file bankruptcy. In the mean time, she is in a bit better of position money wise, so the plan is she will move out and rent a house, he will stay and ride out the foreclosure until he has to move. In Florida that's averaging 2 years at the moment.

The big question is, if she goes ahead and files the bankruptcy, what does that do to him staying in the house?

The next question is his car. Their credit has not been great the last few years due to a layoff and being behind on bills. She did get another job, but it dinged things up in the mean time. After all of this he bought a car. But the banks tried to basically rape him on it. So his parents had enough money available to buy the car cash rom the dealer, then he is paying them back. This was done in the paperwork - there is a promissory note in place, and on all of the paperwork they are listed as the lender the same as a bank would be listed. Soooo - normally on a car loan he would be able to ask for a reaffirmation. But being that it's his parents as the lender, would the court see it the same as a bank?

His last concern is that he has a side business with about $3,000 worth of equipment. Florida does not allow an exception for tools of the trade. As I understand it if the trustee decided to claim the equipment that he could buy it back, but that would be a hard amount to scrounge up. And I doubt he'd be able to save it up and hold it while living in the house because it would have to be claimed in the bankruptcy. So what would be options on this?

Another big question in all of this is that since the end result of a foreclosure is a judgment against you for the amount of deficiency, could you wipe it out with bankruptcy being a judgment? If he's going to file for bankruptcy to get rid of the house debt, what would be the best time to do so - before or after the foreclosure is complete?

 

[despritfreya]

if she goes ahead and files the bankruptcy, what does that do to him staying in the house?

Nothing. He stays until such time as he is booted out due to a foreclosure.

normally on a car loan he would be able to ask for a reaffirmation. But being that it's his parents as the lender, would the court see it the same as a bank?

Reaffirmation agreements are not mandatory. If the lender does not care about it, neither should the debtor. The intention, where there is no anticipation of such an agreement, is to simply "retain and pay". My more immediate concern is whether or not "the bank of mom and dad" perfected the lien on the vehicle just like a "normal" lender would do. If not, BIG problem in the context of a Chapter 7.

$3,000 worth of equipment. Florida does not allow an exception (exemption). . . As I understand it if the trustee decided to claim the equipment that he could buy it back, but that would be a hard amount to scrounge up. . . So what would be options on this?

Assuming the equipment is not owned by a corporation or llc, why not sell the equipment (valid sale for a proper sales price), legitimately live off the proceeds, keeping detailed records as to sale and what was done with the $$ and then file bk?

the end result of a foreclosure is a judgment against you for the amount of deficiency, could you wipe it out with bankruptcy being a judgment? If he's going to file for bankruptcy to get rid of the house debt, what would be the best time to do so - before or after the foreclosure is complete?

Yes the debt is discharged and no, it does not matter when he files as it relates to the mortgage.

Both of you should be consulting with bk attnys in your locale. Initial consultations are usually free.

Des.

 

[jetliner2]

Ultimately I'm sure he will get with an attorney before making any move. I myself am just an ear to listen, and I told him I would post here just to get a general idea of how things could play out.


On the car I don't know if the lien was perfected. But if not, why would that be an issue?

 

[despritfreya]

On the car I don't know if the lien was perfected. But if not, why would that be an issue?

If the lender did not properly perfect the lien under State law, then the vehicle has no lien and, but for any allowed exemption, a Chapter 7 Trustee may liquidate the asset for the benefit of all creditors. In addition, if the lender (family member/insider) did not properly perfect the lien the lender is an unsecured creditor and the Trustee could seek to recover payments made on the loan over the 12 month period prior to filing bk as the payments would be deemed a "recoverable preference". Hopefully the lien has been properly perfected.

Des.

 

[jetliner2]

OK. I understand that part. Seems like technicalities and paperwork, but none the less, it is what it is.

So, now here's my brain churning on this a bit. If I understand the situation right, he wouldn't have to file bankruptcy over his credit card debts - he'd be able to handle those payments. The problem is the house. I guess she's decided she's going to file with or without him. So, could he sign his half of the house over to her, then she can file her bankruptcy, and he's able to get on with life and not screw up the car.

 

[despritfreya]

OK. If I understand the situation right, he wouldn't have to file bankruptcy over his credit card debts - The problem is the house. I guess she's decided she's going to file with or without him. So, could he sign his half of the house over to her, then she can file her bankruptcy, and he's able to get on with life and not screw up the car.

Several points as it relates to the above. . .

1. When someone files a bk ALL creditors are listed. This would include any debt the debtor thinks he/she is not going to get rid of. In your friend's case this would include the credit cards he wants to keep. Bk is all or nothing. Some debt, like certain taxes, student loans and court ordered support payments, are not dischargeable, but all debt is listed.

2. Quit claiming the deed to the home does not get your friend off of the loan. Florida is a "recourse" state. If and when the lender forecloses the lender will have the right to sue for the balance (deficiency) owed. It will sue the parties that signed for the loan, not the parties who were/are on title to the home.

3. If there is no properly perfected lien on the vehicle and your friend files a Chapter 7 the Trustee will take the vehicle. This is very mechanical as a Trustee has a job to do.

Ultimately, your friend may decide to play the wait and see game. Just because the mortgage lender has the right to sue does not mean it will exercise that right. And, you are correct, the foreclosure process in Florida will take a very long time. He can take steps to perfect the vehicle lien NOW (assuming the lien is not perfected) and wait a year or more to file. He really needs to discuss this avenue with an attorney as "pre bk" planning can get very tricky and all of the details must be addressed.

Des.