Divorce settlement funds are only exempt if used for a limited purpose of reinvesting those funds into another homestead. Let’s say for example there is a martial home. One spouse moves out and the other spouse stays in the home. Both spouses are on the deed to the property.
The divorce is pending. No settlement has been reached. Property is not yet for sale. The spouse living in the house can file for bankruptcy and exempt the home as homestead. They would need the permission of the court to sell it while the bankruptcy is pending. Ordinarily the proceeds of the home sale would be exempt as homestead, provided that those funds are segregated and used only to purchase another home.
This must be done within a reasonable period time, typically within one year. If part of those funds are used to pay bills, pay creditors, or pay rent until he/she finds a house the remaining proceeds would not be exempt. There is no specific exemption for property settlement funds received from a divorce if they are not used for a home. If the spouse who is not living in the home wants to file for bankruptcy while the divorce is pending, the home would not be exempt because he/she is not residing in the home. You must be residing in the home for the homestead exemption to apply.
If you have any question as to whether you should file your bankruptcy case before or after your divorce and how property transfers will be viewed by the trustee its best to consult with our office.
The short answer to that question is sometimes. You cannot lower your interest rate in a Chapter 7.
If your vehicle is underwater or has no equity you have the option to surrender the vehicle to the lender and find another vehicle. There is also another option called redemption which allows you to file a motion to reduce the principal balance. For example, if you owe the lender $50,000 and your vehicle is worth $35,000 you can reduce the principal balance to $35,000 and refinance with another company.
In a Chapter 13, this is called a “cram down”. However, you would need to have owned the vehicle over 910 days prior to filing bankruptcy to be eligible for a “cram down”. A Chapter 13 will allow you to lower your vehicle’s interest rate. This is only a practical solution if you need to file a Chapter 13 for other reasons – like you are paying back mortgage arrears or you’re over the income threshold to file a Chapter 7.
You can also file a motion to value secured property to reduce the interest rate. The interest rate used is called the “till” rate . It’s usually 1% higher than the federal prime rate to account for a possible default. If the federal prime rate is 6.25% then till rate would be a least 7.25%.
There is also a trustee fee of 10% , so unless the federal prime interest rates are very low or you are paying a very exorbitant interest rate, its usually cost prohibitive.
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