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Old 02-06-2009, 03:55 PM   #1
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Maybe some of you know the answer to this question. I have a relative who has really gotten herself in a financial mess, and the economic collapse has made things much worse.

In 2004, she bought a 2001 MH. She was 67 yrs. old, got a 5.75% loan with NO down payment for 30 yrs. (I know this sounds farfetched, but is true.) She owns income producing property that is debt free, but the income has dropped so dramatically that she cannot meet her payments on all the stuff that she does owe on. She is thinking of just quitting making payments, esp. on the motor home, credit cards, etc.

What happens? Will a portion of her income be attached to pay the difference in what the motor home sells for at auction when it is reposessed? Surely there is some responsibility on her part. I am vaguely aware of bankruptcies and understand there is a chapter 7 and a 13. However, she is just thinking of stopping the payments on things she wants to get rid of.

Just curious about the way things work.

Beverly
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Old 02-06-2009, 04:07 PM   #2
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I would suggest she contact each creditor separately and try to work something out, or file bankruptcy. If she just stops making payments on things she will accrue all kinds of extra fees and penalties. Then they will repo what they can and attach anything she owns. Interest can even continue on outstanding balances after items are repossessed.
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Old 02-06-2009, 04:18 PM   #3
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Consider advising her to contact and attorney who specializes in credit problems. Her goal might be to protect her income and work out a deal with who she owes. Each state's laws are different. This means she needs a professional to explain her choices and determine what the plan should be.
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Old 02-06-2009, 07:38 PM   #4
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GaryKD and bdpreece are correct. She needs an attorney to assist her in restructuring her debt. Nonpayment and repossession is a short-term resolution to a long-term problem. The creditors will not go away.
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Old 02-06-2009, 08:41 PM   #5
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The creditors will not go away.
And if you don't think so consider this. We moved into our home 2 years ago and naturally got a new phone number. We are still getting calls from collection agencies for someone who had the number before us and we can't get them to stop.
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Old 02-07-2009, 06:07 PM   #6
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Thank you for these replies. I will encourage her to seek professional help.

Beverly
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Old 02-10-2009, 07:03 AM   #7
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A friend of my son gave his house back to the bank.They sold it low and the IRS sent the friend a tax bill cause they consider the difference income.
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Old 02-11-2009, 03:23 PM   #8
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Oh, my goodness. That is unreal. I don't think I'll mention this to her--she's got enough problems.

Beverly
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Old 02-12-2009, 08:16 AM   #9
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Mother-in-law worked for a local bank during a previous downturn in the economy. Unfortunately that time too lots of homes were lost and she told me of owners that were " forgiven" the difference between what the house sold for and the debt balance got a second surprise when the IRS presented them with a bill for taxes on 200-500K of normal income!
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Old 02-12-2009, 08:54 AM   #10
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She probably should have seen an attorney/financial planner who specializes in stuff like this before it got to this stage.

I was reading an article about what to do when you are in financial hot water. It really surprised me.

I kind of figured most people doing a bankrupcy abused the process and tried to rack up as much non-repo-able debt as possible and/or trashed or neglected the vehicle or property being forclosed on.

The article said just the opposite, that a lot of people try to do the honorable thing and keep up the payments as long as they can, until they are flat broke. The article suggested that this left them without the funds to get training in a new field, or to move to where the job opportunities are better.

It also said that banks can go after you when they sell your house for low dollar, and you owe more, but most don't-- Realizing that a person who lost their home/car or whatever likely couldn't pay any debt or judgement against them if they wanted to.

Anyway, talking to a professional ASAP I think would be the best advice.
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Old 02-22-2009, 01:30 AM   #11
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Sadly, sometimes bankruptcy is the right answer. It is written into our laws specifically to help people get a new start. And the creditors must go away once a person has filed bankruptcy... and one can work to restore credit within 2 - 3 years. Many really good, hard working, bill paying people have been hurt by the current economic situation... businesses lost, jobs lost, homes and rv's lost. I agree with previous posts, the friend should consult a bankruptcy attorney. Best wishes...

Brenda, of...
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Old 02-22-2009, 04:18 PM   #12
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Thanks for these replies. To give an update, the relative is my sister. Now, she and her husband of 11 years have parted. He was just mainly in the marriage for the big spending; and once the money was gone, he split. Everybody could see this but her. Of course, that's another story.

She has consulted an attorney. Chapter 7 is not good because she would lose her income producing property. She doesn't want her home anyway because it is about twice as big as she needs. So--it is up for sale, a little over a week now. She is having a lot of lookers--hopefully someone will be a buyer. That would eliminate that payment. She would be happy just to break even on that.

She has gone to the bank about the land. They are willing to suspend payments for 6 mos. and let her pay interest after that (for how long, I don't know). It is up for sale too, but first it's more important to get the house sold.

Then there's the motor home. It is a 2001 Holiday Rambler Endeavor, and the payoff is $104,000--probably three times what it would sell for.

She owes about $75,000 in credit card debt. I don't know what happens about that.

She will be 73 yrs. in April. Looks like the plan is (at the moment) to move in with her son and wife in California (her four children live in Calif.--she lives in Okla.) and use her income to pay off the remainder of the debt.

She is trying to salvage her income, but she was in way over her head even when times were good.

With a Chapter 13, the last six months of income is used to figure, and she hasn't investigated farther with that; but I think that means you eventually have to pay everything off.

Beverly
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Old 02-27-2009, 08:35 PM   #13
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Sounds like tough times all the way around... so sorry. I don't know what else to say except that I think it is wise that she is consulting an attorney.
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Old 02-28-2009, 07:17 AM   #14
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When the bank "forgives" a loan, it becomes a short sale. As many have found out, there is a "kiss" after this gift. The IRS considers it earned income. And thus, is taxable, as ordinary income. Thought it strange at first, but figured it out. Being forgiven a $50,000 is sort of a $50,00 gift with no cash. Yuck. Try winning a major award like the motorhome raffles. The winner will be presented a 1099 with the price which is counted as ordingary income. The "free" motorhome could end up costing $$$ in taxes. Best of luck to all of us as we navigate through this time.
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