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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Parizade on March 10, 2012, 09:23:21 AM

Title: Hypothetical bankruptcy situation
Post by: Parizade on March 10, 2012, 09:23:21 AM
An acquaintance of mine has been asking for my advice regarding bankruptcy. I have never declared bankruptcy or even contemplated it so I have nothing to offer him. I'm posting it here in case anyone else can offer helpful suggestions.

He has been unemployed for years, living with family, and he is about $80K in debt. His only asset is a parcel of undeveloped land in a rural area. I believe it is zoned for hunting/recreation and he has never claimed it as a homestead.

Now he wants to declare bankruptcy but does not want to lose his land. His plan is to set up a tiny cabin with an outhouse (so no running water or electricity) and live there to establish it as a homestead before he declares bankruptcy.

The land is in a northern climate with harsh winters, so this would not be an easy task. He doesn't want to go through the hardship of living that way if he's going to end up losing his land in bankruptcy anyway.

I have no idea what advice to give him. What would a mustachian tell him to do?
Title: Re: Hypothetical bankruptcy situation
Post by: TheDude on March 10, 2012, 11:09:29 AM
If he dosent have anything and he dosent have any income what are the creditors going to get? There is no really reason to declare bankruptcy. He is pretty much judgement proof.
Title: Re: Hypothetical bankruptcy situation
Post by: miamiliving on March 10, 2012, 12:37:12 PM
i created an account so I could respond to this forum. i'm a law clerk at the federal bankruptcy court in FL, and due to seeing people driving a porsche with less than $600 in the bank on a daily basis, i feel it is necessary for me to respond.

if your friend files Ch7 liquidation, every asset he has will be taken, distributed between his creditors, and all his debts will be wiped clean. more than likely, they will take any property he has and try to sell it to generate income for his creditors. there is a slight chance he can keep he property under certain circumstances. i don't know nearly enough to try say whether or not the trustee will let him keep his land, but they regularly allow people to keep their cars, jewelry, clothes, etc. if your serious in that his ONLY asset is a piece of undeveloped land, then ch 7 bankruptcy would be quite the bargain for him.

ch 13 will allow your friend to create a payment plan, and if everyone agrees to it, and he follows his plan accordingly, his debts will go away. of course in order for this to happen he needs to have a regular income.  this will allow him to keep his home/land and anything necessary for his income. such as a company vehicle, or a computer lab

hope this helps. if you could provide more info i could make a better judgement.

Title: Re: Hypothetical bankruptcy situation
Post by: teresa on March 10, 2012, 02:30:04 PM
Honestly, the best thing for your friend to do is to go see a bankruptcy attorney.  Most provide a free consultation anyhow.  Laws are pretty stringent on how much can be charged for the fees if the friend ends up filing.  Depending on the state your friend lives in he/she might be able to keep the land without an issue as many states allow for a certain dollar amount of equity in assets to be retained for a chapter 7 or 13.  Only thing to watch for is if the debt is student loan debt, which in most cases is not dis chargeable or anything that is secured by the debt which would need to be reaffirmed or surrendered.

Not sure if the friend would have to file Ch 13, but if so the whole lack of income thing would be an issue as there has to be a way to pay the creditors back through the plan.

Good luck to your friend - sure it is a stressful and scary time.

Title: Re: Hypothetical bankruptcy situation
Post by: Parizade on March 10, 2012, 02:40:21 PM
thank you miamiliving for taking the time to make an account to answer my question.

The land is his only asset. He has a storage unit of personal belongings, but it was broken into a couple of years ago and everything of value was stolen. He has no car. My son gave him an old computer last year to help him look for work, but that's not worth much either. He lives in Minnesota if that makes any difference.

He's had a rough time of it. I'm afraid those few acres of scrubby woodland are also his last hold on sanity, if he loses those too I doubt he will ever bounce back. So if you have any advice I'll surely pass it along.

hi teresa, I don't think any of it is student loan debt. I believe he paid that all off when he was younger. He is 50 years old now. And thanks for the good wishes.

hi Dude, he's been on the "do nothing" course for some time and I tend to agree with you about staying that course. He worries constantly about losing his land though, so it's taking a toll.