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  1. #1

    Default Filing for Bankruptcy When Your Only Income is Through Social Security Benefits

    My question involves bankruptcy in the state of: indiana

    i don;t want to but we may be forced into filing bankruptcy. However, I have some questions... My husband is retired (72) and on social security. I am 64 and on social security disability which just started last year. We have a tax liability of over $10,000 that we are making payments on and have for several years. We tried a debt consolidation loan company not realizing that we would be charged taxes on all the write offs of credit cards. We thought we were doing good by using savings to pay them off. but it bit us in the butts. we still have an open credit card account for $12,000 that would not negotiate and we ran out of money. They are still trying to collect from my husband's social security income. But we still haven;t paid. We are also paying off hospital/doctor bills as we are able even though they are all in collections. in April my husband had a heart attack and 5 bypasses. We are anticipating a large hospital bill not covered by insurance on that. He was in the hospital for over 30 days.

    We are thinking that once we receive all his bills we may have to file bankruptcy as we can never get out of all this debt. We still carry about $10,000 in active credit card bills that never were negotiated and that we live on to pay for medical prescriptions. Yes, we both have insurance but it does not cover all and our out-of-pocket costs are high for my medical issues. My husband and I both lost our jobs (he around 2007 and me around 2001 and 2011) We made good money and saved but it didn't seem to be enough and we used most of it on debt reconciliation and then living expense.

    We own 2 older vehicles (2001 Chevy Blazer and 1998 Chevy truck). We also own our own home but have a $40,000 second mortgage on it that we are paying off. We also own a lake cottage which we are selling on land contract but we have yet to see the first payment on it ($3,000 this year and 2 $5,000 payment every year thereafter until paid for a total of $65,000). how would that cottage that we are selling on land contract figure into the bankruptcy? could they make us call the loan in and use it to settle debts before we could do the bankruptcy/

    Thanks.

  2. #2
    Join Date
    Mar 2013
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    Default Re: Can I File Bankruptcy

    First of all, until one of your creditors sues you and gets a judgment, they can't take anything from you. Even with a judgment, both your social security benefits would be exempt from judgment so they won't ever be able to get it.

    IRAs and 401(k)s are exempt from judgment so don't use any of that money to pay debts. It would be like throwing money down the toilet.

    Unfortunately, bankruptcy in Indiana is quite risky because of the limited exemptions.

    Your residence is only exempt up to $19,300 (Statute 34-55-10-2) in equity so if your home is worth substantially more than the $40,000 mortgage + the $19,300 exemption you would have to sell your home and use the proceeds to pay debts before you can discharge remaining debts.

    Indiana doesn't have a specific exemption for vehicles but does have a wild card exemption of $10,250 (Statute 34-55-10-2(c)(2)) that can be applied to home or vehicles.

    Any money you get from the sale of the other property would go to the bankruptcy trustee.

    I suggest you consult a bankruptcy though it might be to your advantage to stop paying anything but your mortgage as you might very well be judgment proof. Also keep your money out of banks in case you do get sued.

  3. #3

    Default Re: Can I File Bankruptcy

    I forgot to mention that I have around $5500 in a savings account that was from my SSD back payment. I thought that you were allowed to keep your residence if you reaffirmed the loan. Is that not true? So would they make me sell the lake cottage to pay debts? Are you saying not to pay the medical bills or the collections on them?

  4. #4
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    Default Re: Can I File Bankruptcy

    Quote Quoting labsmom5
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    I forgot to mention that I have around $5500 in a savings account that was from my SSD back payment. I thought that you were allowed to keep your residence if you reaffirmed the loan. Is that not true? So would they make me sell the lake cottage to pay debts? Are you saying not to pay the medical bills or the collections on them?
    I thought you said you already sold the lake cottage.

  5. #5

    Default Re: Can I File Bankruptcy

    I am selling it on land contract. It just started this year and will run for 6.5 years

  6. #6
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    Default Re: Can I File Bankruptcy

    Quote Quoting labsmom5
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    I am selling it on land contract. It just started this year and will run for 6.5 years
    The you are bound by that contract and a bankruptcy trustee cannot make you break that contract. However the income from that contract could be used to pay creditors and therefore the bankruptcy trustee might make you go chapter 13.

  7. #7
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    Default Re: Can I File Bankruptcy

    Quote Quoting labsmom5
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    I am selling it on land contract. It just started this year and will run for 6.5 years

    Exactly my point. Trustee cannot make you sell an assset you have already sold.

  8. #8
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    Default Re: Can I File Bankruptcy

    Quote Quoting llworking
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    you are bound by that contract and a bankruptcy trustee cannot make you break that contract.
    Note entirely true. In general the land contract is an executory contract that can be assumed or rejected by the Trustee (See A below).

    A good analysis found after a quick Google search:


    Land Contracts in Bankruptcy

    November 03, 2015

    Purchasing property on a land sale contract is fairly straightforward. The buyer (vendee) provides the seller (vendor) with a down payment for the home and the seller acts as the bank, financing the balance of the purchase price. Thereafter, the buyer continually makes monthly payments until the land contract is satisfied.

    In practice, the vendee receives equitable title to the property and the vendor retains legal title until the purchase price is satisfied. In the interim, the buyer can assign, sell, and devise his equitable interest in the property. The seller can also convey, sell, and devise his legal title. While this seems straightforward, more often than not, issues involving land contracts wind up in bankruptcy court.

    If a bankruptcy proceeding is filed by (or against) the land contract vendor or vendee after execution of the land contract, the land contract will be construed under 11 USC 365 to determine whether it is an executory contract. Notably, executory contracts can be “assumed, assigned or rejected by the trustee” in bankruptcy or debtor in possession.

    A. Vendor is Debtor

    When the vendor is the debtor in bankruptcy, 11 USC 365(i) and (j) serves as a protective measure to the vendee’s interest. First and foremost, the vendee is not harmed if the trustee assumes or assigns the land contract. The vendee’s interest is preserved and he or she would continue to make payments. On the other hand, if the trustee elects to reject the land contract, under which the vendee is in possession, the vendee is protected and may elect either to treat the contract as terminated or remain in possession. If the vendee treats the land contract as terminated, it is granted a lien on the property in the amount of the purchase price paid. 11 USC 365(j). If the vendee elects to remain in possession, it must continue to make the scheduled payments and does not have any other right to damages, other than to offset against the payments due any damages caused by the nonperformance of any obligation of the debtor after rejection. 11 USC 365(i)(2). The trustee, pursuant to 11 USC 365(i)(2)(B), must deliver title to the property after the vendee has satisfied its obligations under the land sale contract.

    B. Vendee is Debtor

    If the vendee is the debtor in bankruptcy, the bankruptcy courts are divided as to whether the vendee (or trustee) must assume or reject the contract as an executory contract or whether he or she can treat the land contract as equivalent to a mortgage. “While some courts consider installment land sales contracts to be executory because performance remains on both sides, numerous other courts categorize them as non-executorybecause they are in the nature of a sale and security device.” Kane v Inhabitants of Harpswell (In re Kane), 248 BR 216, 223 (BAP 1st Cir, 2000). The Sixth and Eighth Circuit characterize land sale contracts as executory. See In re Terrell, 892 F2d 469, 473 (6th Cir., 1989) (finding a purchaser’s interest in a land sale contract was executory because both parties had unperformed obligations); see also In re Speck, 798 F2d 279, 280 (8th Cir., 1986) (holding land sale contracts are executory because obligations remain on both sides). For example, in In re Terrell, the Sixth Circuit Court of Appeals found that the debtor-purchaser’s interest in the land sale contract was an executory contract because there were material obligations left to be performed by both parties to the contract. . .

    However, other courts and commentators have disagreed and found that land sale contracts are non-executory and not subject to 11 USC 365. See In re Heward Bros, 210 BR 475, 479 (Bankr D Idaho, 1997) (finding land sale contract was security device not an executory contract under 11 USC 365); See also In re Rehbein, 60 B.R. 436, 441 (BAP. 9th Cir., 1986) (finding land sale contract was not an executory contract where debtor had fully performed by placing deed in escrow). In fact, Collier on Bankruptcy has taken the approach that land sale contracts are non-executory contracts because they are indistinguishable from mortgages. . .

    In sum, courts disagree on the source of law used to evaluate the status of land sales contracts. While some courts focus on the definitions that have evolved under federal bankruptcy law, other courts have ruled that the nature and extent of parties' contractual obligations depend upon the terms of the particular contract and the classification of such contracts under relevant state law, recommending a case by case analysis.
    Section 365 is very complicated. OP needs to discuss this with a qualified bk attny to understand what can or cannot happen if and when a bk is filed. Certainly, if filing a Chapter 7, the income stream paid to OP will end as payments will be tendered to the Trustee pending acceptance, rejection or assignment of the contract.

    Des.

  9. #9
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    Default Re: Can I File Bankruptcy

    Quote Quoting labsmom5
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    I thought that you were allowed to keep your residence if you reaffirmed the loan. Is that not true?
    I don't think so. Not in your case where the exemption + your loan balance leaves you equity in the home that is not exempt. The equity would belong to your creditors through the bankruptcy court. I think Des can confirm that.
    Quote Quoting labsmom5
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    Are you saying not to pay the medical bills or the collections on them?
    If you are going to file bankruptcy anyway and discharge your debts, why throw good money away by paying anything. Again, strategy, not legal advice. Quit paying and start to squirrel away money you'll need for the bankruptcy.

    One other thing, depending on how old your tax debts are, you might be able to discharge some of the older ones.

    You've got some complicated issues. Consult a bankruptcy attorney and review your options.

  10. #10
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    Default Re: Can I File Bankruptcy

    For property held as tenancy by the entirety, you and your spouse may each claim the $19,300 homestead exemption and thus exempt up to $38,600 of equity from claims in bankruptcy.

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