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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 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
    View Post
    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.

  9. #9
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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.

  10. #10
    Join Date
    Sep 2010
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    467

    Default Re: Can I File Bankruptcy

    I have read back through the posts. Thank you AJ and Mr. K for the exemption info.

    OP,

    Assuming there is equity in your residence above the allowed exemptions, once a creditor obtains a judgment, the creditor could execute against the home as provided under State law.

    Assuming there is no exemption to protect your right to the income from the sale of the cottage, once a creditor obtains a judgment, the creditor would be able to garnish the proceeds as provided for under State law.

    Assuming the vehicles are not fully protected by an exemption, once a creditor obtains a judgment, the creditor could execute against the vehicles as provided for under State law.

    What cannot be touched by any creditor (except the IRS) is the payment of SS and/or SS Disability so long as those funds have not be commingled with any other money. Those funds need to be kept in a segregated bank account and you are never ever to add to the account any money that did not clearly, without question, come from SS or SSDI.

    If you elect to do a bk, in a Chapter 7 you will lose the non exempt assets (property) to the Chapter 7 Trustee. He or she will sell the asset, give you an amount equal to your allowed exemption and give the rest to the creditors, less his/her fee.

    If you elect to do a bk, in a Chapter 13 you get to keep all of your non exempt assets (property) so long as you agree to pay the value of the non exempt property to your creditors over a 3 to 5 year period. Your Chapter 13 Plan can be a combination of monthly payments and the sale or refinance of some asset to assist in funding the Plan or it can simply be a monthly payment high enough to pay creditors what is required to pay over the 3 to 5 year period.

    Your next step is to meet with a bk attny.

    Des

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