Lot of Bankruptcy Questions: Chapter 7 Bankruptcy, Repossession, Home Purchase Loans, Stopping Foreclosue, Credit Rebuilding
By Stephen Behrends, Feb 26 2020 04:49AM
Q: Do you have to have bad credit to be able to file bankruptcy? We have pretty good credit but can’t afford to pay much more than the minimum payments on our credit cards. They spiked when my wife was ill and our insurance didn’t fully cover the costs of many of her medications. We’d like to buy a house but we can’t save money for a down payment because of the payments on the credit cards and it will take years to pay them off. Can we file bankruptcy even though we have good credit scores?
A: There is no requirement that you have bad credit to file bankruptcy. The better your credit is going into bankruptcy, the easier it will be to rebuild it afterwards. Bankruptcy might be a reasonable and responsible solution to your situation.
Q: I have decided that I have to file bankruptcy. I talked to an attorney for a free consultation and was thinking of hiring him. I had a question about whether I should still pay the payment on my credit cards while raising the money to file. It would take six months if I keep making the payments but only a couple of months if I stop. But I didn’t know if I would get in trouble with the bankruptcy court if I stopped making my payments and used the money to pay for the bankruptcy lawyer. I left a few messages but never got a call back. It turned out that he works out of another city and only comes to my town when he has court hearings. So I was hoping I could get the answer from you!
A: Once you have decided for sure to file bankruptcy, it is ok to stop making the payments on your credit cards and other unsecured debt. Of course, you should keep paying your car payments and student loans. Stopping the payments will make it slightly harder to rebuild your credit since you will get some negative marks on it from not making the payments but on the other hand it will help you file your case much sooner.
Q: I have heard that it takes 10 years to rebuild your credit after a bankruptcy. Is that true?
A: Most people find that they can rebuild their credit after a bankruptcy in two and a half to three and a half years. You should plan on taking active steps to rebuild your credit. These are things like taking advantage of small opportunities to get and use credit, including secured credit cards or a modest car loan. Sometimes it helps to start an account at a local credit union before your file bankruptcy and then try to use that relationship to help build your credit afterwards.
Q: How long after I file bankruptcy can I get a home loan?
A: The answer depends on whether you lost a home to foreclosure in the past and whether you have the income to qualify for a home loan. If you have had a foreclosure, it can take 4 to 6 years longer than if you did not. Most people find that if they have regular income, they can qualify for a home loan in two and a half to three and a half years after a bankruptcy if they don’t have a foreclosure on their credit record. Of course, the better your credit is going into bankruptcy, the easier it is to rebuild it afterwards.
Q: I have lived in Oregon my whole life. I have a lot of credit card debt, approximately $45,000.00 from the period of time when I was in a relationship and had a good income. I also have a lawsuit against me from a car that I purchased with my girlfriend. I wasn’t able to make the payments after we broke up and so it was repossessed. The lender sold it and there wasn’t enough to pay the balance we owed. The only thing I have now is a couple of years old Ford F-150 that is free and clear. It is worth about $16,000.00 or $17,000.00 if I tried to sell it. I would like keep it because I use it for my job in construction. My brother said that I should transfer it to him or to my dad before I file bankruptcy so that, when I do, I won’t have anything for the bankruptcy court to take. Is this a good idea?
A: No, it is definitely a bad idea. If you transfer it, the bankruptcy trustee can sue your brother or your father for its value. If you didn’t transfer it but instead still had it when you filed bankruptcy, you could claim it as exempt under the Federal Bankruptcy Exemptions. There is a $4,000.00 exemption for a vehicle and a $13,900.00 catch all or wild card exemption that can be added to the vehicle exemption to cover your truck. Under those circumstances, the bankruptcy trustee couldn’t take it. But if you transfer it, you can no longer claim the exemption, so the court could get it or its value from your brother or your father.
Q: The IRS is taking 15% of my husband’s social security for personal income taxes on our 2014 returns. We filed the in 2015 when they were due. We owed a lot on them because we had to take money out of a 401(k) to help our daughter. I am still working and am being garnished by the State of Oregon for the same tax year. They are taking 25% of my net pay. We don’t have a lot of other debt and we live in a manufactured home that we own outright. It is worth about $20,000.00 and is located in a mobile home park. I heard from one friend that you can’t file bankruptcy on taxes and that we would lose our home if we did anyway. But my sister, who had to file bankruptcy a couple of years ago, said that her attorney told her that her home was protected up to a value of $50,000.00. She also said that her accountant told her that once taxes are more than three years old, they can be discharged in a bankruptcy case. Is she right about these things?
A: Yes, she is, with one possible exception. It is true that taxes that were due more than three years ago and filed more than two years ago can be discharged in bankruptcy. She is also correct that your homestead exemption is $50,000.00 for a couple and $40,000.00 for an individual under Oregon law. So your home is safe. However, if the IRS filed a tax lien with the Secretary of State, it might have a lien against your home. Bu the IRS wouldn’t try to take your house or try to sell it even if they had a lien. You would just have to pay them if you sold it within 10 years from when the lien was filed, even if you filed bankruptcy. If they filed with the County Deeds and Records, the IRS wouldn’t have a lien against your MH because you don’t own the land. The bankruptcy would help your monthly budget a lot because it would stop the garnishment of your check and the 15% coming out of your husband’s social security.
Q: My brother co-signed on a car loan for his son and his wife. The car was totaled in a wreck and it turned out that there wasn’t any insurance because their check had bounced. Now they are going to file bankruptcy. My friend said that the bankruptcy would wipe out the debt so that it couldn’t be collected from my brother either but that doesn’t sound right to me. Will he still be responsible for what the credit union doesn’t get from selling the wrecked car?
A: Yes. Bankruptcy will only take care his son and his wife’s liability on the loan; it doesn’t wipe out the debt or eliminate your brother’s responsibility for it. He would either have to file bankruptcy himself or try to work out a settlement or payment plan with the credit union.
Q: There is a foreclosure sale set on my house for June 1, 2020. I am 68 years old and I just can’t afford the payments on my social security of $1,464.00 per month. My house is worth about $235,000.00 and I only owe $67,000.00. Realtors keep calling and knocking on my door but I don’t want to move. I heard that Chapter 13 could stop a foreclosure and save my home. Would it work for me?
A: No, because in Chpater 13, you would have to be able to make the payments after the case was filed. Otherwise, you would have to plan on selling it yourself either before or after the bankruptcy was filed to stop the foreclosure. There is only one real alternative that might be able to keep you in your home and that is a reverse mortgage. Generally, we don’t like them because they can eat up all of the equity in your home but they do work well to eliminate mortgage payments while letting you stay in your home. However, if you are thinking of looking into reverse mortgages, call around and ask a lot of questions because the terms and the costs can vary widely. And don’t forget that you still have to pay the homeowners’ insurance and the property taxes yourself, even if they were being paid out of your monthly mortgage payment before. But it it gets to be too close to June 1st and you need to stop the foreclosure sale, you can always file Ch 13 to buy the time to get the reverse mortgage in place.