{"id":6555,"date":"2020-11-05T19:36:01","date_gmt":"2020-11-05T19:36:01","guid":{"rendered":"https:\/\/mn-bankruptcy.com\/blog\/?p=6555"},"modified":"2020-11-05T19:43:32","modified_gmt":"2020-11-05T19:43:32","slug":"things-to-avoid-before-bankruptcy-item-6-paying-ahead-on-your-mortgage-or-car-loan","status":"publish","type":"post","link":"https:\/\/mn-bankruptcy.com\/blog\/things-to-avoid-before-bankruptcy-item-6-paying-ahead-on-your-mortgage-or-car-loan\/","title":{"rendered":"Things to Avoid Before Bankruptcy: Item 6 – Paying Ahead on your Mortgage or Car Loan"},"content":{"rendered":"\n

By Dave Kelly, Minnesota Bankruptcy Attorney<\/p>\n\n\n\n

This is the sixth in a series of posts about the top seven things I recommend you avoid if you are considering a Chapter 7 or Chapter 13 bankruptcy.<\/p>\n\n\n\n

Paying extra on your mortgage or car loan might ordinarily be a prudent thing to do. You might even have been advised to do so by a financial adviser or guru. But if you are thinking about a Chapter 7 bankruptcy, or even a Chapter 13, this is probably a bad idea. You are not sure to have trouble with your case if you have been making some extra payments, but the risk that something might go wrong is probably higher because of this. In the old and clanking gears of my legal mind, I can see three ways you could have a problem with this.<\/p>\n\n\n\n

The assumption that I am making in this discussion is that you have a car or a homestead which is going to be exempt in your bankruptcy case, and there has been some action by you which increases the amount of the equity in the exempt car or exempt home. <\/p>\n\n\n\n

Intent to Defraud, Hinder or Delay a Creditor<\/h2>\n\n\n\n

I’m talking here about the provisions of 522(o) of the bankruptcy code. It has an intent element. It only applies to your homestead, not your car; and it only applies if you have put extra money into your homestead with the intent to hinder, delay or defraud a creditor. If you are only making a few small extra payments on your mortgage, I would expect it would be very difficult to prove this intent element. But if you are putting a relatively large amount into the house, either by paying the mortgage or by doing a home improvement, you need to have your lawyer screen for a possible problem with this. <\/p>\n\n\n\n

To the extent that your trustee can prove that 522(o) applies to a portion of your homestead, that portion is not exempt. That portion will be an asset that the trustee in a Chapter 7 can claim for the creditors. If you can’t figure out any other way, a sale of your home might be required to make this equity available. <\/p>\n\n\n\n

Examples I see in the case law include using money from the sale of stock and using money form a large tax refund. Of the various reasons I can see that you might run into trouble for making an extra payment on your mortgage, this is the least likely one on the list. Still I am concerned about the possibility – it’s my job to be concerned. <\/p>\n\n\n\n

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