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Ask WALLSTREETESQ Your Own Question
Category: Bankruptcy Law
Satisfied Customers: 17248
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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My husband and I have a tremendous unsecured debt (credit cards)

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My husband and I have a tremendous unsecured debt (credit cards) of $92,000. We cannot continue making the minimum payments. However, in the past years we have had a high income. He was laid off from a $90,000 job last April. Currently my husband is selling real estate and doing some consulting as a trainer. His income is very sporadic, but has had some good months in the past. He has not had any income the last 2 - 3 months. He is getting unemployment ($2000) a month, which will end in April.

I have a job as a flight attendant and carry our health insurance. I bring home about $1200 a month.

We own a home. Our payment on the 1st is $1500 (loan of $194,000) and the second is $350 ($48,000 loan).

I have several questions. We just received an offer from our 2nd mortgage holder to pay off the $48,000 loan for $16,800. I can borrow against my 401K (I have $30,000 there) to pay it off. Can I do that if we are considering bankruptcy? And which one could we do 7 or 13?
if you make 1200 per month and does not have an income now, the means test will not be an issue, do you want to keep the home, and file a bankruptcy?
Customer: replied 7 years ago.

Yes! Chapter 7 if we can. The problem is that in February he will be getting paid for past work and in March will have some real estate money coming in. Also, don't they look at income for the past year? Last year he had a couple of very good months of income. We want to keep our home.


Can I go ahead with paying off the second? The court won't come back to us and want that money back?

what is the current market value of the home?
Customer: replied 7 years ago.

About $230,000. So with the 2nd we owe more than it's worth. But if we pay it off we will have some equity. Should we file before we pay it off or after? I didn't think we could pay off the 2nd after we filed.


We really want to pay it off since they are offering such a great deal. And the offer is only good till the end of this month.

I would pay it off, and wait 6 months to file a chapter 7, this way you avoid the trustee stating that the money should have gone to your creditors, the look back period is six months.
Customer: replied 7 years ago.

But if we wait 6 months my husband will be showing income from real estate and his consulting. Over the next 6 months he may make (unsure if all the deals will go through) close to $25,000 gross. This money will enable us to live from month to month. But the hugh debt is killing us. That is why we want to file now.


What if someone gives us the money and we use it for the second. What would the court say then?

For two people the MN means test is $5,199 per month or 62,384 a year, I still think you can do this. Also, any creditor that is paid 6 months prior regradless by who could be an issue.

2 person

Avg. Monthly Income
(past 6 months)
per month

6-Month Total:

12 month annualized
Customer: replied 7 years ago.
Is the $5,199 gross or net? Is it possible the court would understand why we did it? And aren't unsecured debtors treated differently from secured ones (our home)? Also, how much cash are you allowed to keep? What about my 401K? Would the court make me liquidate it?
it is gross, if you have children it is more, also it is a 6 month average. The trustee may say if you can pay the secured creditor why cant you pay some of the others.

The following table is MN exemptions in a bankruptcy.

Real property, mobile home or manufactured home to $200,000 or, if the homestead is used primarily for agricultural purposes, $500,000; cannot exceed ½ acre in city or 160 acres elsewhere

510.01, 510.02,

550.37 subd. 12



Accident or disability proceeds


Fraternal benefit society benefits 64B.18
Life insurance proceeds if beneficiary is spouse or child of insured to $32,000, plus $8000 per dependent 550.37 subd. 10
Police, fire or beneficiary association benefits 550.37 subd. 11
Unmatured life insurance contract dividends, interest or loan value to $6400 if insured is debtor or someone debtor depends on 550.37 subd. 23


Earnings of minor child

550.37 subd. 15

Property of business partnership 323.24


ERISA-qualified benefits needed for support, which do not exceed $48,000 in present value

IRAs needed for support, which do not exceed $48,000 in present value

Private retirement benefits (only benefits building up)

Public employees

State employees

State troopers

550.37 subd. 24

550. 37 subd. 24





Personal property

Appliances, furniture, radio, phonographs & TV to $7200 value

550.37 subd. (4)(b)

Bible, books & musical instruments 550.37 subd. 2
Burial plot; church pew or seat 550.37 subd. 3
Clothing (includes watch), food & utensils 550.37 subd. 4(a)
Motor vehicle to $3200 (up to $32,000 if vehicle has been modified for disability) 550.37 subd. 12(a)
Personal injury recoveries 550.37 subd. 22
Proceeds for damaged exempt property 550.37 subds. 9, 16
Wrongful death recoveries 550.37 subd. 22

Public benefits

AFDC, supplemental assistance, general assistance, SSI/SSA

550.37 subd. 14

Crime victims compensation 611A.60
Unemployment compensation 268.17 subd. 2
Veterans’ benefits 550.38

Workers’ compensation


Tools of trade

total tools of trade (except teaching materials) can’t exceed $13000

Farm machines, implements, livestock, farm produce & crops of farmers to $13,000 total

550.37 subd. 5

Teaching materials (including books, chemical apparatus) of public school teacher 550.37 subd. 8
Tools implements, machines, instruments, furniture, stock in trade & library to $8000 total 550.37 subd. 6


Earned but unpaid wages, paid within 6 months of returning to work if debtor received welfare in the past

550.37 subd. 5

Minimum 75% of earned but unpaid wages 571.922
Wages deposited into bank accounts for 20 days after depositing 550.37 subd. 13
Wages of released inmates paid within 6 months of release 550.37 subd. 14
All Earnings not subject to garnishment restrictions 550.37 subd. 13



Customer: replied 7 years ago.

Motor vehicle to $3200? I lease my car which is a 2009 Altima worth probably $18,000. What will happen to my car if we file?


What about Chapter 13? On average, what percent of the $90,000 would we have to pay back in 5 years? And in that case we would have to show that we have the income to make the payments! I think we are screwed.

you can keep the car if you want by reaffirming it. In a chapter 13, the unsecured debts can be reduced as low as 60-80% and the second mortgage can be converted to unsecured debt, thereby saving you to have to pay them at all. If the property of the house is not enough to cover the 2nd the 2nd loan could be turned into unsecured.
Customer: replied 7 years ago.

Wow. Do you mean that if the 1st and 2nd combined is more than the house is worth, then the 2nd could be turned into an unsecured debt? Is that the test?


And as far as reducing the unsecured debt, will the decision be based on the income for the last 6 months?

yes, yes it will be based on income for the last six months.
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