End of my rope, want to file ch. 7 but don't know if I can.
I'll skip the history of what got me here, other than to say divorce and covid-related layoff are the main factors. My income was reduced by half at least.
CC debt of 25,000. I stopped paying once my forbearance ended and had to choose mortgage payment over CC debt. I was sued and default judgement was just ordered after the judge pushed the court date twice so we could continue negotiating. They offered to settle for $8,000 but there's no way I could conjure up that lump sum. And there's only so many days I can miss work, when I didn't attend the last date the default was ordered.
I just paid off a new car loan taken out in 2017 by the skin of my teeth (car was repo'd once about a year ago -- owe my partner $2500 for getting me out of that jam).
I have another 3,000 on a care credit account when my 1 year old dog had a health scare.
I have a mortgage with $122,000 unpaid principle; lender website says I have $130,000 in equity but that's absolutely overestimated in my opinion.
I contacted a lawyer about a year and a half ago to inquire about bankruptcy and was told that due to the equity in the home I'd be forced to sell it to pay my debts. That's the absolute last thing I'd want to do, mostly because my monthly is $875 and with my current income a rent increase would destroy me. I'm pulling in $2000 a month currently.
My main question is was that lawyer correct? I never sought a second option. As much as I hate still living in the house I was divorced in, I've been here 13 years. I don't want my kids to change schools, and with the rent crisis I'll never be able to afford an apartment. Not to mention the task of moving itself looks like an impossible mountain to climb to my ADHD brain.
That's all I have to say about that. Appreciate any advice!
Posted Jul 3, 2023, 11:26 PM UTC
So I'm going to go with correct but so poorly explained it sounds worse than it should be.
So a core principle of Chapter 7 is that, as a liquidation, you are offering your non-exempt assets in exchange for the elimination of your debt. Now, not knowing what state you are in, I'm just going to assume that the attorney you previously met with is right and that $130K of equity in your home (which means a total value around $250K) and $25K of credit card debt would mean that a Chapter 7 would sell your house to pay your debt, which is an undesirable outcome in a 13.
There's maybe a half dozen states where those numbers would not be a problem. It's far more likely than not that you would lose that home in a Chapter 7. Every assumption here would have to be massively incorrect for you to not lose your home in a 7, as your equity is about 5x as much as your debt.
So for situations like that, I always steered my clients in the direct of a Chapter 13. Very likely paying $25K in full, plus attorney fees and something for the trustee, but most likely without interest. That's probably in the range of $500 per month to deal with all the debts.
The good news is that Chapter 13 has no asset seizure power; however, a trustee judges it on how fair it is to your unsecured creditors, and their power is to tell the judge if the case is fair based on how much you are paying. If your income is only $2,000 per month, that's no relevant because a payment in a case like yours is based on the value of your assets, not your ability to pay.
This leads to a condition that we affectionately refer to as too broke to go broke, where the bankruptcy requires more of you that you are financially capable of doing.
We can parse this a little bit to see if your attorney's conclusions were correct, so:
Those two pieces of information can lock down whether or not that attorney is correct.
I live in MO. I honestly have no idea how much the home is worth. I purchased it for ~147k in 2010. And I know it needs a lot of work. Flooring could stand to be redone, water heater needs to be replaced ASAP, HVAC runs runs well but was brand new in '10, I was told it needed a new roof within 2-4 years at the time of purchase. I have noticed there have been a ton of homes in my vicinity that have sold recently. I suppose that could give me some insight into how much it's worth, but with the amount of work I feel it needs it's hard to put a value on it. Sorry for rambling.
This is an incredibly valid thing to discuss.
While Missouri appears to have a pretty limited homestead of $15,000, the current actual value is relevant. This is where spending $500 on an appraisal can be an incredible investment.
If your home is worth, say, $150K, it would look kinda like this:
But if the home is worth as little as $175,000 or more, you're looking at full repayment.
So given how narrow the range is between no repayment and full repayment, unless you're extremely confident that the value is over $175K, your case will benefit from you having a solid valuation, and an attorney can direct you to a licensed appraiser for that.
Really appreciate you taking the time to respond. Thank you.
IANAL.
With the prices of housing lately, their estimates may not be as far off as you might think. What do sites like Zillow/Redfin/Realtor estimate your home’s value?
Just did a Zillow estimate, $241k with 7.5% error rate.
Look up what your home is worth on your county GIS map. It is the amount the government says your property is worth and the amount they tax you on. I would only list that number.