Published March 20, 2012
Dear Bankruptcy Adviser,
I have equity in my home, and I was OK making payments. But I was in the construction business and could not keep up with what I owed. Now the bank has charged off several loans and is getting ready to sue me. All I have left is my personal home. With creditors closing in, what can I do?
Let's hope you can protect all your home equity and still file for Chapter 7 bankruptcy protection. This type of bankruptcy allows you to wipe out your debt and keep your property.
It is very important to consult with an attorney prior to filing bankruptcy whenever you have equity in your home. You need to be certain prior to filing that you do not have more than you can protect.
In the event you do have too much equity, you need to know your options.
Here's one thing you don't want to do: accept any advice that you put the property into a trust or transfer it out of your name altogether. This is no solution. If you're eventually sued for what you owe, the creditor would be able to unwind that property transfer by claiming you intentionally tried to hinder, delay or defraud the creditor from its lawful rights to collect. You cannot simply transfer the property out of your name to avoid a creditor's claims.
Some people will have a friend place a lien against the property then file bankruptcy. The lien conveniently uses up the amount of unprotected home equity. This option rarely, if ever, works. The court-appointed person assigned to your bankruptcy case, called a trustee, would want to know what you did with the money and when the lien was placed on the property. You would need a very experienced and competent bankruptcy attorney to show you how to execute this type of action, if it's at all possible.