Get $15,000 loan or lose home in bankruptcy?

Justin HarelikDear Bankruptcy Adviser,
I am in Chapter 7 bankruptcy. For many reasons that would take a long time to explain, the trustee said he will file an objection unless I settle for $15,000. I don't have the financial means to battle in court to fight the objection, so I have to somehow raise $15,000 in one month or lose my house. I own a house free and clear. Are there any mortgage lenders that will give me a $15,000 loan, for only a few months? I will have to sell the house within a few months following bankruptcy to repay the loan. I realize the interest rates will be high, but wonder if these types of loans are given to someone in my position. I have no income, but my mother is willing to help me on the monthly payments. (She is on a limited income.) I need to borrow the $15,000 for a maximum of six months.
-- Sharon

Dear Sharon,
I personally don't know of "hard money" lenders. That is a term of art for lenders who give loans based on collateral only and not credit or income. Some people refer to them as "loan sharks," because the lender charges high rates and fees. I think someone would give you a short-term, high-interest rate loan for the time period you are requesting. The interest rate and fees will be outrageous, but you don't have a lot of options at this time.

You filed a Chapter 7 bankruptcy to wipe out your debt, but you can only protect so much of your home's equity. Each state allows you to protect different amounts of equity. In Florida and Texas, you can protect all the equity in your home. In California, you can protect from $75,000 to $175,000 in equity. This is known as your "homestead exemption."

In your case, the trustee believes you are not able to protect $15,000 of the equity. He or she is saying that you must turn over that money or the trustee will sell the home to recover those funds.

In your case, the trustee believes you are not able to protect $15,000 of the equity. He or she is saying that you must turn over that money or the trustee will sell the home to recover those funds.

You need to determine which course of action will cost you less money. The trustee will sell the house to the highest bidder. You will get your homestead exemption amount first and the trustee will take the rest to pay your creditors. For example, let's assume that bankruptcy laws in your state allow you to protect $100,000 in equity. The house sells for $150,000 after cost of sale. The trustee will give you the first $100,000 and take the rest to pay your creditors and his or her fees. You get any funds left after creditor payments and trustee fees.

Getting a loan for $15,000 will likely cost you another few thousand dollars in fees and points to the lender, even for a short-term loan. While I believe that it is best to try and sell the house yourself and not through the trustee, it may or may not be worth the loan costs.

I hope you can find the least expensive solution. While you ultimately may lose your home, you are also eliminating all debt. That might ultimately be worth the loss.

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