What happens in bankruptcy?

[abelenkpe]

I just found out my parents filed for bankruptcy recently. This is a huge blow to them. They were making around 350,000 a year up until 2008 when business dried up for my pop's business. They had two rental RCI places and a home they lived in since the 70s but kept refinancing. They refi'd around 2007 at the absolute top of the bubble for the DC area and had a mortgage payment of around 4000 a month for a home they originally bought for 70,000. :crazy: They always had lots of credit card debt, took vacations and have been raising my sisters three kids. So as one can see they were highly leveraged and living far above their means despite making good money. I'm super worried about them though. And mad. They haven't told anyone and only just admitted it to me.

Any idea what will happen to them? Will they lose their house? Still be able to care for my sister's kids? Anyone know? They think they can keep this a secret and go on as they were before. Is that possible?

I know they are long overdue for a comeuppance. I left their home in 1985 and am their only kid who actually left the nest and isn't still dependent on them somehow. My brother and sister do not know what's going on. Just trying to figure out what comes next and how this will all shake out so any info would be greatly appreciated. Thanks!

[nonconformist]

1. It depends.

It depends on if they filed a Chapter 7 or 13. In a 7, all unsecured debts are discharged while secured debts can be voluntarily given up without penalty or can be renegotiated and kept. In a 13, all debt is gathered together and you pay it back (all or in part, depending on your income) in monthly payments over 3-5 years. In the case of a home, the back payments (if they were behind) would be included in that.

In both chapters, though, you can keep your home if you chose to and have the income now to make the payments.

It wouldn't have anything at all to do with them caring for their grandchildren.

If they want to keep it private, that is absolutely their right. Nobody needs to know outside of creditors, their attorney, trustee, and anyone who they try to obtain credit from in the future.

[Ineeda]

3. As far as keeping it secret, bankruptcy filings are usually published

in the legal section of local newspapers.

[abelenkpe]

5. Thank you!

This information is a relief. I think the most important thing to them is to be able to keep it private. They've spent their whole life as the symbol of prosperity and their whole self image is tied up in that. Good to hear it won't effect my sister's kids since my sister is not in a spot to be able to care for them unfortunately. So thanks! :)

[nashville_brook]

2. most states have homestead exemptions, if even limited. and there's no reason why anyone should

announce a bankruptcy to anyone. there's different kinds of filings, but with the new law, what you're generally going to do get rid of unsecured debt and restructure the rest of it. many people choose to keep some debt and continue paying -- i.e. no declare that debt. it's up to the debtor.

check the state laws wrt homestead.

ETA -- usually the only people who know about a bankruptcy are the people present on your day in court. so, if they happen to be there when the neighbors are also doing their bankruptcy proceeding, then the neighbors will know. there's also Legal Notices in the paper, but the only people who read those are obsessives and vultures.

[nashville_brook]

4. here's the DC exemptions: 100% primary residence exemption

http://bankruptcy-law.freeadvice.com/bankruptcy-law/dc-bankruptcy-exemptions.htm

DC Bankruptcy Exemptions

Assets Exemption State Statute
Homestead Residence of debtor or debtor’s dependents: all. 15-501(a)(14)
Insurance Life insurance contract (unmatured) other than credit life insurance: all. 15-501(a)(5)
Disability benefits: all. 15-501(a)(7); 31-4716.01
Life insurance payments: all. 15-501(a)(11)
Other insurance proceeds: up to $200 per month for a maximum of 2 months for the person providing the principal support for a family; up to $60 a month for 2 months for all others. 15-503
Life insurance proceeds or avails: all. 31-4716
Group life insurance policy/proceeds: all. 31-4717
Life insurance proceeds: all if policy has a clause prohibiting the proceeds from being used to pay the creditors of the beneficiary. 31-4719
Benefits from a fraternal benefit society: all. 31-5315
Miscellaneous Child support and alimony payments: all. 15-501(a)(7)
Pensions Federal pension exemptions.
Judge pensions: all. 11-1570(f)
Stock bonuses, annuity payments, pensions payments, and profit-sharing plans: all. 15-501(a)(7)
IRA’s, Keoghs, and other ERISA-qualified benefits: up to maximum tax-deductible contribution. 15-501(b)(9)
Public school teacher pensions: all. 38-2001.17; 38-2021.17
Personal Property Motor vehicle: up to $2,575. 15-501(a)(1)
Household furnishings, appliances, musical instruments, books, clothing, and pets: up to $425 for each item and $8,625 total. 15-501(a)(2)
Professionally prescribed health aids. 15-501(a)(6)
Family pictures: all. 15-501(a)(8)
Family library: up to $400. 15-501(a)(8)
Recovery for loss, including pain and suffering of the debtor or someone the debtor depends upon: all. 15-501(a)(11)
Recovery for wrongful death: all. 15-501(a)(11); 16-2703
Food: enough to last 3 months. 15-501(a)(12)
Holdings in cooperative association: up to $50. 29-928
Deposit for a residential condominium: all. 42-1904.09
Burial and cemetery funds: all. 43-111
Savings account for higher education: all. 47-4510
Public Benefits General assistance: all. 4-215.01
Blind, aged, or disabled aid: all. 4-215.01
Crime victim's compensation benefits: all. 4-507(e); 15-501(a)(11)
Social Security benefits: all. 15-501(a)(7)
Veterans' benefits: all. 15-501(a)(7)
Workers' compensation benefits: all. 32-1517
Unemployment compensation benefits: all. 51-118
Tools of Your Trade Seal and documents of notary public: all. 1-1206
Tools needed for trade or business: up to $1,625. 15-501(a)(5)
Furniture, tools, and library of artist or professional: up to $300. 15-501(a)(13)
Tools of mechanic: up to $200. 15-503(b)
Wages Recovery for loss of future earnings: all. 15-501(e)(11)
Earnings other than wages, such as pensions and retirement funds: up to $200 per month for head of family; up to $60 per month for 2 months for those not head of family. 15-503
Wages earned but not yet paid: at least 75% of wages and pension payments. The bankruptcy judge may allow a larger percentage for low-income debtors. 16-572
Wildcard Any property: up to $850. 15-501(a)(3)
Any property: up to $8,075 of unused homestead exemption. 15-501(a)(3)

[abelenkpe]

6. Wow. Thanks!

Great information. Thank you so much for the link too.

I think I'll actually be able to sleep tonite knowing they can keep the house and keep their secret. :)

[TexasObserver]

10. Exemption doesn't mean they can't have it foreclosed for non payment.

There is a mortgage on the property. To keep the property they have to confirm the debt on the house and start paying note payments again. Any asset they wish to keep which is encumbered with debt will require them to confirm the debt and start making payments again on it.

They could reorganize their business debt, but again, anything they wish to keep that is financed they'll have to confirm the debt and make payments again.

Bankruptcy temporarily stops foreclosures, evictions, and seizures, and puts a hold on lawsuits until the creditor gets permission from the bankruptcy court to proceed with each of those actions. It allows the bankrupt debtor to regroup, to eliminate most unsecured debt, and to buy some breathing room. If they're in a liquidation, they'll have to sell off assets which are not exempt, and those proceeds will go to pay secured debt, taxes, and lastly, unsecured debt.

They won't likely be able to support the whole family, so everyone who has been depending on them for support should start looking for new support.

[abelenkpe]

7. Wow. Thanks!

Great information. Thank you so much for the link too.

I think I'll actually be able to sleep tonite knowing they can keep the house and keep their secret. :)

[Gaedel]

11. If the house is mortgaged to the hilt........

They are probably way under water with it and it would be to their advantage to let it go in bankruptcy.

I think they will have to downsize, especially if their business is liquidated in the process.

[madinmaryland]

8. Please don't be angry at them. If anything, they need your support now

more than ever. They already know that they have made very poor financial choices and don't need to castigated by their kids. It is a very traumatic situation. I've been thru it and it is not a happy situation, but the only way out.

DON'T BE MAD AT THEM. They are hopefully learning and will change.

[abelenkpe]

9. True

I feel bad for them and would never say or do anything that would be any thing other than supportive. I'm mad they didn't say anything about their troubles. Then mad they only told me and now I have to keep it a secret. And mad they didn't explain what would happen....but I do love them and am happy to hear they will keep their home and dignity.

I already tiptoe delicately around so many subjects with them (they are conservatives :)) so one more thing should be a snap. You are right. I promise to be supportive and kind. Thanks!

[depakid]

12. A bit of advice

Tell your mom not to wear expensive jewelry, (e.g. a fancy engagement ring) to the 341(a) hearing.

[customerserviceguy]

13. You have a set of exemptions to choose from

You can either choose the ones for your state, or the Federal ones. You're likely to lose any property that is not your own personal residence, but if they've mortgaged the rental places up to the hilt (or beyond) there's probably no real equity there, anyway.

I filed bankruptcy back in 1996, and while it shows on your credit report for ten years, I was able to use other means to dig my way out. I now have a credit rating in the high 700's, your folks can come back from this, too. Let's hope they've learned something from this.

[abelenkpe]

14. That is good news

Thanks!