Author Topic: To pursue bankruptcy or no?  (Read 4397 times)

SoManyQuestions

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To pursue bankruptcy or no?
« on: March 05, 2016, 06:52:08 AM »
So, longtime follower but I started this account to ask some questions even more anonymously. Any feedback or advice is welcome!!!

I am in a long distance relationship (4 hour drive, 2 states over) with a divorced dad of 2 kids. We have been together over a year and would like to make plans to live in the same state in the near future. Financially, we both have some issues we need to try to resolve to move forward. Since his divorce is the gift that keeps on giving, so I thought I would take it to the forums for some help.

Him: Kindergarten teacher in a relatively LCOL area. Income in the low 40s with little room for growth
His kids: 2 kids, 8 and 11 years old. Great kids.
His divorce: His divorce was finalized in Nov 2014. They didn't use a lawyer (MISTAKE) and he ended up with the short end of the stick in an effort to avoid conflict.

The relevant points to this question are his mortgage debt and his credit card debt. I will address each separately...

1. Marital Credit Card Debt: about 12K originally, now down to 8K
When we met he was paying the minimum payments and basically assumed he would have this debt forever. I swept into his life and we started him on Mint and a budget and he has been throwing all excess funds to this debt, about $500/month. He is frugal by nature, but hadn't been paying a ton of attention to his finances due to feeling overwhelmed by it all. He now feels his hair on fire, and is trying to extinguish it as fast as possible.

2. Mortgage and HELOC: roughly $175K (I don't know the exact total)
During his divorce, he agreed to quit claim the deed to their house to ex, while remaining the only person on the mortgage (UGH). Ex was SAHP for most of the relationship and unable to get mortgage in her name. I am shocked he was able to get that high of a mortgage on his income, but this was pre-crisis. So, yes, he is the only person on the mortgage, while she alone has the property interest. He does not pay the mortgage but relies solely on his ex to make sure it stays current. So far she has been paying all payments. She has not consistently worked since the divorce. She will get relatively low paying jobs for a few months at a time and then bails. She has a new BF living in the house, and my guess is he is paying most of the bills. However, without work history, she cannot get a mortgage to refinance and get my BF off the mortgage, which was the deal when they divorced.

Question:
EX wife refuses to discuss the mortgage with BF and he has no idea if or when she will ever refinance to get the mortgage out of his name. The divorce decree was unclear about that, other than a requirement that she refinance within 6 months of getting remarried. So, is bankruptcy (Ch. 7) the best option here, for both the credit card debt and the mortgage/HELOC. Should he stop paying extra on CC debt (on 0% interest card till Nov) until he explores this option further? We know his credit will take a huge hit, but he wants out from under this and EX shows no signs of making any moves to get a mortgage in her name.

Thank you in advance!!!

human

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Re: To pursue bankruptcy or no?
« Reply #1 on: March 05, 2016, 07:04:10 AM »
I don't really have any advice, just trying to understand this nightmar.  Your bf has custody of the kids, the ex lives in the matrimonial home while bf pays the mortgage? Where do he and the kids live?

SoManyQuestions

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Re: To pursue bankruptcy or no?
« Reply #2 on: March 05, 2016, 07:10:32 AM »
I don't really have any advice, just trying to understand this nightmar.  Your bf has custody of the kids, the ex lives in the matrimonial home while bf pays the mortgage? Where do he and the kids live?

Nightmare is right.

They split custody 50-50. He does not currently pay the mortgage, but the mortgage is in his name. If she ever stopped paying, it would fall on him, though he isn't in a position to pay the mortgage (in addition to the rent he is paying for his own apartment). He pays $300 in child support.

human

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Re: To pursue bankruptcy or no?
« Reply #3 on: March 05, 2016, 07:29:22 AM »
I'm no bankruptcy expert, but I think proving insolvency in this case would be difficult. He doesn't really have much cc debt and student loans (compared to some of the horror stories you hear here). my advice get a lawyer to figure out how the motgage can be transferred and continue paying other debts.

little_brown_dog

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Re: To pursue bankruptcy or no?
« Reply #4 on: March 05, 2016, 07:50:36 AM »
Yikes.

Good news is, he is committed to fixing his finances. That’s half the battle.

Even though this is scary, it is a good sign that the ex and/or her bf are paying the mortgage and we have no evidence to believe they will stop paying in the near future. Personally I would focus on crushing that cc debt ASAP (knowing they could stop paying the mortgage at any time), and then look into hiring a lawyer to figure out what to do about the mortgage before it blows up. But I don’t know if I would get a lawyer before I was out of the cc debt. I think I would want to ensure that I could pay those lawyer fees without doing into debt again.

Bankruptcy is a huge step and not sure if this is that big of an emergency that he needs to do that. While it can be a lifesaver for those in dire straights, this seems like something that can probably be handled with appropriate counsel.  I also am pretty sure bankruptcy would do nothing to discharge the mortgage…just the cc debt…and that is not the actual problem.

Zamboni

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Re: To pursue bankruptcy or no?
« Reply #5 on: March 05, 2016, 07:51:41 AM »
He needs to lawyer up. It would be more reasonable for there to be some time limitation for her to either refinance the home she is in or move to something she can qualify for on her own.  Of course, it sounds like he has already signed an agreement with another arrangement that is less equitable to him, so a lawyer is needed to figure it out.

I can't really throw stones, though, as I've been divorced for more than 5 years and I discovered a couple of months ago through a credit check that my ex- still has a credit card with my name on it which has recently been run up to an $8K balance. We had agreed to close all joint accounts back when we split, and I thought we were disentangled financially now, but somehow this one was snuck under the radar (ex- had a habit of opening joint cc accounts without even telling me and so I never knew about it) and suddenly it has the big balance. When I broached it recently, I got this cavalier attitude of "What's the big deal?" and "It's not going anywhere for awhile bc of my big tax bill."

What I want to do is call the CC company up and close the account immediately, which is well within my rights. I had to do that on another card years ago, but that resulted in angering my ex-, who then paid the absolute minimum each month and it just now is down to zero. Annoying, but at least it got paid eventually. So, what I am going to do instead is wait until mid-March when I know my ex- has a giant bonus check coming, then bring it up again and say "You need to pay this card off now and take my name off of it. This should not even be in my name and I've given you plenty of time to take care of it. I've been understanding and patient. If I'm still seeing it on my credit report next month, then I will call them to close it and expect you to continue to pay it until the balance is $0." I'm only even being civil about it bc of the kids.

So yes, you are right, divorce is the gift that just keeps on giving. For something as big as a mortgage, shelling out the money for a lawyer to help disentangle oneself is probably a good call.

Dicey

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Re: To pursue bankruptcy or no?
« Reply #6 on: March 05, 2016, 07:58:32 AM »
Wow, so much to process here! I'd like to think on this more. Off the top of my head, I'd say that $300/month is really low. Perhaps that number is in consideration of the housing arrangement? If he forces her out of the home, where and how will their children live? I'd expect that if your BF pulled the house out from under them, she'd have no problem getting (t)he(i)r (See what I did there?) child support increased considerably.

Keeping them in a stable home is to everyone's benefit, including yours.

It appears that you "swept" into his life just as his divorce was finalized. Hmmm, not a lot of time for him or their children to adjust before you came along. I could be completely mis-reading this, but I'm not sure you fully grasp the situation. When I was single, I stopped dating divorced men with underage children. I always looked at this arrangement of needs:

1. His, particularly as a parent and primary breadwinner.
2. Child #1
3. Child #2 (etc. If there are more children)
4. His ex-wife, because she will ALWAYS be the mother of his children.
5. Me
6+ Any children I might have with him.

Yeah, I didn't like that math, and you might not like it either. Even if you help him acquire a massive 'stache, this hierarchy of needs will always be there. I did not want to enter a situation with the deck so stacked against me and any future children. Given some time to reflect, you might not either. Hopefully, further reflection will help you see that what you're suggesting is wrong for his chikdren. That might be hard for you to accept, but that's the reality of the situation.

Whew, I guess I did have a lot to say...

I'll end with this. If this is indeed a "nightmare", recognize your role in this drama for what it truly is. You knew the circumstances when you chose this man. If you continue this relationship without recognizing and being comfortable in your subservient position, it may be difficult for you to find the happiness you seek. No lawyer in the world can change this, btw. Only you can. Use your power wisely.

Another Reader

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Re: To pursue bankruptcy or no?
« Reply #7 on: March 05, 2016, 08:13:56 AM »
The "deal" is not what he remembers about a verbal agreement, but what is in the court-approved written agreement.    To change the terms of that agreement, your SO would have to lawyer up and re-open the settlement.  Diane C is correct, his child support payment is extremely low.  The court might agree that the house needs to be sold, but the child support must be increased dramatically.  She is the only party on title, so any equity recovered from a sale would be hers.

It seems like the SO and his ex were on reasonably good terms until you showed up.  She seems to value the house and has always paid the mortgage on time.  In your SO's shoes, I would consult a divorce attorney to see what his options are and if there is an amicable way to resolve the problem.  Bankruptcy to get out of a debt that is current is likely not an option.

SoManyQuestions

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Re: To pursue bankruptcy or no?
« Reply #8 on: March 05, 2016, 08:45:59 AM »
Thank you for the responses. I am going to try to address them one by one.

Re: seeking advice of lawyer. Yes. I agree wholeheartedly and he already has met with one, and will be seeking more opinions. I wanted to crowd source any other feedback/options from this august body.

human: under Ch. 7, insolvency isn't the key determination. There is a means test that is required, but insolvency isn't the primary focus.

little_brown_dog: part of the theory of suspending cc payoff if he goes the route of bankruptcy is to include the cc debt as part of the bankruptcy. Mortgages can be discharged in bankruptcy. There is an issue of her property interest and the fact her property interest what secures the mortgage. It's definitely good that she has continued to make payments.

Zamboni: Yes. He is already bound by an agreement and understands that. And yikes to your situation with your ex. Sounds like you have a good plan but sheesh.....

Diane C: thank you for your comments. Re: child support payments - he is actually paying more than required under the child support calculations for his state. They imputed income for her, and yes, it seems low to me. But apparently it is in line/more than required. I agree that keeping them in a stable home is important. They will never be without a home. The mortgage agreement was not tied to child support payments. Re: me coming into their life before they had time to adjust. They had been separated a number of years. Both had started dating. Mom moved her bf in. The kids are handling this all very well and seem well adjusted. Re: grasping the situation - I am not sure what you mean. I am not advocating for him to do any particular thing. He considered bankruptcy before I came along and honestly, it isn't my decision. I am trying to get some information for him to review from objective sources because I know I am not that person. And I do my best not to interfere with his relationship with his kids or his ex. I agree with your hierarchy and totally appreciate my position and role in all of this. Dating men with children is not for the faint of heart.

Another Reader: I totally agree. Verbal agreements are meaningless. I offered that as explanation for what the spirit of the agreement was supposed to be. He is not expecting any equity in the home. And yes. They were on relatively good terms until I showed up, but there isn't anything I can do about that now. I have never interacted with his exwife. There are many reasons why the relationship has soured, mostly having to do with differences in parenting styles. That is fairly irrelevant to the issue of how he can get out from under this mortgage. 
« Last Edit: March 05, 2016, 08:52:51 AM by SoManyQuestions »

nycstash

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Re: To pursue bankruptcy or no?
« Reply #9 on: March 05, 2016, 10:25:43 AM »
I guess I'm confused about why he needs to get out from under the mortgage in the first place. Is it because he wants/need to get a new mortgage? His ex/ex's partner are paying the mortgage and have given no indication that they will stop doing so. So why is this a problem? It doesn't affect his cash flow or his credit rating. It is true that if his ex should suddenly stop making payments, there would be a serious problem. But couldn't it be dealt with at that time? Seems to me that if this happened the worst-case scenario is that the bank forecloses on the home and his credit takes a major hit. But even that seems unlikely. If it did happen, as long as his financial house is not built on the need for credit, that would not be a disaster. Why destroy the equilibrium of an arrangement that seems to be working if there's no immediate problem? Honestly, the credit card debt isn't great but it's not a disaster either. If he is really able to pay $500/month on it then he'll have it paid off in 17 months or so and then will be able to plow that $500/month into retirement, savings for a downpayment on a house of his own or whatever other needs he determines. His situation seems relatively good. You say he wants "out from under" the mortgage situation, but it seems like decisions are being made on an emotional basis (not wanting to be tied to the situation of the ex or having to worry about it) rather than from an objective financial point of view. I can see why this would be, but it should be resisted.

On another note, I don't see $300/month in a low cost of living area in a 50-50 custody arrangement as particularly low. Presumably, the dad is already paying half the costs of the kids upkeep by having them 50% of the time. He has to pay for enough house for them to stay and is feeding them while they are there and presumably paying other expenses. I think a lot of ideas of child support are based on an outmoded understanding of the mom having full custody.

Another Reader

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Re: To pursue bankruptcy or no?
« Reply #10 on: March 05, 2016, 10:59:55 AM »
Has your SO discussed with his attorney what happens to the house if he is successful in filing Chapter 7?  My understanding is that the lender will refuse to accept payments on the mortgage from her because the mortgage is part of his bankruptcy.  The lender will then file a foreclosure action.  The ultimate result could be her losing the equity in the house as the result of his actions.  Her option will be to go back to court and re-open the divorce settlement, and in her shoes that's what I would do.

Sadly, after reading your posts, it appears to me that you are the problem.  The situation is not the most pleasant for your SO, but your meddling could make it a lot worse. 

SoManyQuestions

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Re: To pursue bankruptcy or no?
« Reply #11 on: March 05, 2016, 11:14:00 AM »
Thanks for the input, nycstash. He would eventually like to get a home of his own. Of course, that would be years away given the current cc debt situation and then saving for a downpayment. Yes, if she stops paying the mortgage he could try to deal with it at that time, but for now he is mostly exploring options. Bankruptcy is just one. My understanding is that a foreclosure is less of a credit hit than a bankruptcy is anyway.

I think you hit the nail on the head when you say it seems that some of this is from an emotional rather than financial standpoint. I don't think he was informed of the ramifications of quit claiming the deed while still being on the mortgage. He has spoken to a number of attorneys who all wince when they hear that. He also feels his hair on fire, and he doesn't like it. He has no control over the biggest chunk of debt in his name, and he would like to regain some control. I think I have influenced this somewhat with all my talk of early retirement and savings.

My generally take away from the comments is 1. bankruptcy doesn't sound like the ideal way forward and 2. stay the course. And of course 3. consult an attorney. :)

I am open to any other thoughts, critiques, suggestions....

SoManyQuestions

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Re: To pursue bankruptcy or no?
« Reply #12 on: March 05, 2016, 11:15:47 AM »
Has your SO discussed with his attorney what happens to the house if he is successful in filing Chapter 7?  My understanding is that the lender will refuse to accept payments on the mortgage from her because the mortgage is part of his bankruptcy.  The lender will then file a foreclosure action.  The ultimate result could be her losing the equity in the house as the result of his actions.  Her option will be to go back to court and re-open the divorce settlement, and in her shoes that's what I would do.

Sadly, after reading your posts, it appears to me that you are the problem.  The situation is not the most pleasant for your SO, but your meddling could make it a lot worse.

How am I the problem? I did not suggest this course of action. I don't even support it necessarily. I am just asking some questions.

former player

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Re: To pursue bankruptcy or no?
« Reply #13 on: March 05, 2016, 03:24:42 PM »
You say that the divorce agreement, in relation to the house, was that 1) the deeds were put solely in ex-wife's name (ie she was given whatever equity is in the house), 2) the mortgage is in ex-husband's name, 3) all the subsequent mortgage payments have been made by ex-wife, and 4) the mortgage was supposed to be put in ex-wife's name within six months after the agreement was made but this transfer has not happened, won't happen (ex-wife doesn't have the financial standing).

If ex-husband wanted, he could probably try to get the arrangement changed by the courts on the basis that ex-wife hasn't kept her side of the bargain (by not transferring the mortgage within six months).  The only practical way for the courts to enforce the bargain would be to order the sale of the house.   A court might order that.   On the other hand, the ex-wife has kept the spirit of the bargain (by making the mortgage payments), this is the home of their children at least 50% of the time and there is no certainty that if the house was sold suitable alternative housing could be provided for the children.    It is a lot of disruption and potential loss to all concerned, for the nominal benefit of ex-husband not having his name on a financial obligation which is not currently causing him any practical or financial difficulty.

Frankly, I'd say that although it's currently an unsatisfactory situation, it's best left alone until either the mortgage falls into arrears, the ex-wife wants to sell or the youngest of the children reaches the age of 18, whichever comes first.   Then either the ex-wife should take on the mortgage or a sale of the house should be made, forced through the courts if necessary.  At least that provides an end-point.

Ex-husband should continue to pay off the credit card debt.  As a teacher I hope he is accruing a good pension.  As a couple you should probably keep your finances separate until the mortgage is off his books.   Get a pre-nup if you get married.

Another Reader

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Re: To pursue bankruptcy or no?
« Reply #14 on: March 05, 2016, 03:51:11 PM »
The only requirement in the agreement per the OP is for the ex to refinance within 6 months of getting remarried.   Not likely she will marry the BF because of this stipulation.

If I were the OP's SO, I would focus on getting all the other debt paid off ASAP.  I would try to stay on good terms with my ex, for the sake of the kids as well as keeping an open line of communication about the house.  Honey catches more flies than vinegar....  If she does stop paying, it's her housing that she will lose, so if she is at all sensible, she won't let that happen.  If there is equity, she would likely sell the property if she could no longer make the payments.

However, I would find out what my options are, both in the current situation and in the event the ex stops paying the mortgage.  Letting the house go to foreclosure could be the best option at that point, as the SO has no claim on the equity.  The attorney will advise him on that.

SoManyQuestions

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Re: To pursue bankruptcy or no?
« Reply #15 on: March 05, 2016, 07:28:51 PM »
Currently, no one is in violation of the divorce decree. Bankruptcy was brought up as an option when SO was meeting with an attorney on another matter, and this mortgage came up during the course of that conversation. SO didn't get a chance to talk at length to that attorney about bankruptcy as an option, but will be doing so as was suggested, so he would have all the information he needs to make an informed decision. The one pitfall of foreclosure v. bankruptcy is any deficiency judgement that could be made against SO in a foreclosure. But like GI Joe said, knowing is half the battle.

SO and I have already discussed the issue of merging finances or being legally tied to one another, and that is not something we are going to do anytime soon, or at least until this mortgage is resolved or his youngest is 18.

I appreciate everyone's feedback. Even Another Reader, who believes I am the problem. :)

AZDude

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Re: To pursue bankruptcy or no?
« Reply #16 on: March 07, 2016, 09:06:43 AM »
A mortgage is a secure debt, so bankruptcy will not help there. Bankruptcy will only cover the CC debt, and sounds like he is well on the way to paying that off.

As far the cluster____ that is the divorce, mortgage, and child support... I don't really have any advice to give. obvious thing would be sell the house and split any profit, and then go your separate ways, but he has already signed something saying otherwise. As long as the ex is doing her part, not much that can be done.