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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Legal
Satisfied Customers: 116154
Experience:  JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
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I am a resident of state and my brother is a resident of New

Customer Question

Hello, I am a resident of Washington state and my brother is a resident of New Mexico. He has two debts that he is unable to keep up the payments for 1) credit card debt, approx. $14,000, 21% interest and 2) a bank loan, approx. $28,000, $800 a month payment secured by personal property. In addition he has a $200,000 mortgage and has borrowed $14,000 from his 401k that is being paid back through payroll deductions of $500 per month. His salary is about $45,000-$50,000 a year. I would like to help him out but I am fearful he will repeat this cycle. I will either 1) let him go through bankruptcy or 2) payoff his credit card and personal property bank loan and write up a contract where he pays back the money over a 20 year period with no interest and secure the loan with stipulations that he go to credit counseling, incur no further personal or credit card debt and prepare a monthly budget. I would let him go through bankruptcy but I am worried about the ramifications for his future employment and for my sister in laws future employment.
JA: Since estate law varies from place to place, can you tell me what state this is in?
Customer: He lives in New Mexico and I live in Washington
JA: Has anything been filed or reported?
Customer: no
JA: Anything else you want the lawyer to know before I connect you?
Customer: did you see the information about his debts that I typed?
Submitted: 7 months ago.
Category: Legal
Customer: replied 7 months ago.
If I decide to pay his debts, thereby loaning him money I would like to secure the loan with his home . What forms do I need to do this and where do I have to file these forms after they are signed?
Expert:  Law Educator, Esq. replied 7 months ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
If you choose to pay off his debts, which will not stop him from continuing with this cycle and creating debts he cannot pay and really is not a wise move on your part, you would need a loan contract and a promissory note where he gives you security interest in his home, but your security right (lien) on his home would be in second place behind his mortgage, so if anything happens to the home and you cannot pay the mortgage off you can still end up not getting paid back because the mortgage has to be paid first before you can collect.
If you choose to do this, then you need a loan contract agreement, a promissory note, and a security agreement which states he is securing the note by agreeing to give you a lien on his property. Once you have the document signed and notarized, you would file it in the property records where his deed is filed and it would be attached to his deed. Here is a sample of the loan agreement/note/security agreement, it is for a car and can be used for anything, but you need to modify it to suit your own needs: http://www.aocg.com/resources/NM3-TITLE%20LOAN%20CONTRACT.pdf
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Customer: replied 7 months ago.
I understand that paying off my brother's debts is not a wise financial move on my part. If I decide to do it, I am doing it to help my sister in law and my niece and nephew.
I have some follow up questions.
1)Can you please tell me the definite negative consequences and possible negative consequences for my brother and sister in law if they file for bankruptcy?
2) if I decide to loan them the money can you attach a blank promissory note/ loan contact / security interest form that I can edit?
3)I would also like to stipulate other loan conditions such as a) he is prohibited from incurring any other debt without my written permission and b) he obtains monthly credit counseling for at least two years ; is it possible and legal to for me to write those stipulations into a loan contract in the state of New Mexico?
4) I obtained a promissory note and security interest form from the local Office Depot store in the state of Washington. The security interest form instructions states it is not to be used for real property. Is there a special security interest form to be used for real property? Also do I need a loan contract and a promissory note? how are those different?Thanks, Jean
Expert:  Law Educator, Esq. replied 7 months ago.
Thank you for your reply.
Really the negative would be the possibility of losing the house. But aside from that basically, it would reset all of their debts to zero and give them a fresh start. They would not be able to get credit for the first 4 years or so and then slowly their credit will begin to build back up and after 7 years everything should be cleared from their records.
2) Here are two that are editable: http://udel.edu/~pollack/Acct350/Handouts/UCC-SecurityAgreement.doc
and
http://www.wsba.org/~/media/Files/Licensing_Lawyer%20Conduct/LPO/73-08%20Security%20Agreement.ashx
3) You can add in any terms you want.
4) You can use these for real property, you have to attach the deed description to it and you have to file it where his property deed is filed.
Customer: replied 7 months ago.
Can you please give me examples of scenarios where they would lose their home? For example is it likely if the house is under water? If there is $20,000 equity or if there is $50,000 equity?
Also, I have read that employers now look at credit scores when hiring? Could a bankruptcy prevent ,my brother or his wife from being hired or getting a promotion?
Thank you,
JeanState/Country relating to question: New Mexico
Expert:  Law Educator, Esq. replied 7 months ago.
Thank you for your reply.
They would lose their home if they do not pay their note on time. Also, if they have more than $30,000 in equity the house could be taken in a bankruptcy.
Some employers look at credit score, but they cannot deny employment for a bankruptcy or credit score (unless it is for some financial position) and if they do that would be discrimination/retaliation.
Customer: replied 7 months ago.
Thank you. I am not very familiar with personal bankruptcy, could his personal debts be restructured or reduced rather than going away entirely? One loan is secured by his truck, but his truck is the only vehicle that can get up their dirt road to their house in the winter, could the truck be taken away as part of the bankruptcy? Could he possibly lose his 401k as well? What type of administrative fees are involved in a personal bankruptcy?
Thank you,
Jean
Expert:  Law Educator, Esq. replied 7 months ago.
Thank you for your reply.
It all depends on which type of bankruptcy he qualifies for based on his asset/debt ration, which the bankruptcy attorney has to examine. If he qualifies for Chapter 13, that is where they reorganize his debt and seek to get some creditors to take less and set a payment plan, but if he misses just one payment he could have the Chapter 13 dismissed and have to file a Chapter 7. As far as his credit score, the Chapter 13 or Chapter 7 would do the same damage.
His retirement funds and income are exempt from bankruptcy, so his 401K would be exempt.
The fees for a bankruptcy attorney are about $1500 for a complete chapter 7 or 13.