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cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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Hi - Requesting this question to be answered by a bankruptcy

Resolved Question:

Hi - Requesting this question to be answered by a bankruptcy lawyer.

My sister is considering filing for bankruptcy as she owes $200,000 in credit cards and has no way of paying for it. She also owns a property worth $850,000 and has $20,000 in IRA account. Years ago, I co-signed the house with her and she currently owes $700,000 in mortgage. During desperate time, she took another $100,000 in credit cards , without my knowledge.
I'm inquiring on the pros and cons of bankruptcy on her behalf. How is it going to effect her based on her assets? What I worry more is how it's going to affect me and my husband. My husband is a physician. Our networth is $2 millions between real estate, stocks, 401 K, IRA, and cash. We own a house that is titled both under our names. Will our house be in jeopardy? Can the creditor put a lien on the house that I own with my husband?
Submitted: 7 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 7 years ago.
Is there more than one house involved? Are you the co-owner (both names on the deed) on the house that you are the co-borrower on?
Customer: replied 7 years ago.

Yes, there are 2 houses involves. One is deeded under my sister and my name. I'm on the loan on that house. I'll call it Kadi court house. Technically, she owns it but I co-signed it for her years ago. The other is the Harrington house which my husband and I own together.


By the way, are you a bankruptcy lawyer?

Expert:  cfortunato replied 7 years ago.
When someone files a Bankruptcy, the court looks at everything they own, and allows them to keep certain assets. (These are called the "exempt" assets.) If the debtor owns more assets than the exemptable amount, those assets must be turned over to the Bankruptcy court.
Probably the most significant assets a debtor owns are a house and a car. In California the debtor can keep a house if her share of the equity in it is less than $75,000. If you own half of the house (and you do, even though your sister "technically" owns it), then her share of the equity is $75,000, so she should be able to keep the house. Additionally, she would be able to keep a car with equity (market value minus balance on car loan) of less than $2550.
Her filing of a Bankruptcy will no affect on the mortgage on the Kadi house, and will have no affect on your or your husband's assets, including the Harrington house.
Customer: replied 7 years ago.

Let's say, the Kadi court house is appraised for $900,000 and the loan balance is currently $700,000. Now, her share and my share of equity is now $100,000 each. What would happen?


You indicated that her filing for bankruptcy would not affect my husband and my assets including the Harrington house. But just to add another layer of protection, would you recommend creating a single member LLC and titled the Harrington house under that?

Expert:  cfortunato replied 7 years ago.
Then the house would be taken and sold. She would get $75000, you would get $100,000, the lender would get $700,000, and the Bankruptcy court would get $25,000.
Of course, the more protection, the better - even if apparently unwarranted - however, creating an LLC now would not insulate the house from claims that arose before the house was put into an LLC.

Edited by Christina Fortunato, Esq. on 7/7/2010 at 4:10 PM EST
Customer: replied 7 years ago.

One last question that i forgot to ask - would her filing for bankruptcy affect my credit? It's now below average, my FICO is 625.


Expert:  cfortunato replied 7 years ago.
No - her filing will not affect your credit score, as there is no reason for it to.
cfortunato and other Bankruptcy Law Specialists are ready to help you
Customer: replied 7 years ago.
great. Thanks so much for your help Christina.
Expert:  cfortunato replied 7 years ago.
You're welcome! And thank you for accepting my answer!