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The Tactical Chapter 7 13 Bankruptcy Manual

The Tactical Chapter 7 13 Bankruptcy Manual

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Published by ntshadow
Step by Step How to File Chapter 13 and Chapter 7 Bankruptcy from Bankruptcy-Divorce.com
Step by Step How to File Chapter 13 and Chapter 7 Bankruptcy from Bankruptcy-Divorce.com

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Published by: ntshadow on Dec 27, 2008
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10/16/2011

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This is a fictional example of bankruptcy planning and strategy taken from two true stories.
Federal law prevents any attorney from advising you to borrow before filing Bankruptcy. So we
will not give that kind of advice to you, but this is an example of borrowing so that there is no
equity left for the Trustee to take.

It is 2007. James X has a $190,000 dollar house. His family only makes 40,000 a year. He used
to be able to afford his credit cards but his wife became disabled and now he is close to losing his
home. The home has a $100,000 dollar mortgage and James has $100,000 in credit card debt. At
this point James is still up to date on all of his debts. The interest rates on the cards are close to
21% and he can barely pay the interest. At 21% they double every 3 years. Because he has
$90,000 in equity he can’t file a Chapter 7 bankruptcy without losing his home. He is allowed to
keep $20,000 for himself and $20,000 for his wife if both of them are on the Deed but the
mortgage and the exemption equal only $140,000 not $190,000. His only initial choices are to
file a Chapter 7 and let his home go to the bankruptcy court or to file a chapter 13 and repay at
least $50,000 dollars to the bankruptcy court over the next 5 years at over $1,000 per month. If he
misses payments in his Chapter 13, he will be tossed out of court.

The Tactical Bankruptcy Manual, © 2007 Nick C. Thompson. All Rights Reserved.

44

James also owes $20,000 on his 2002 GMC Truck to Ford Motor Credit, but it is only worth
$10,000. James also has two old junk cars a 1992 Firebird and a 1990 Jeep Cherokee neither cars
have a motor or transmission. Both are worth only $500 book value.

He refinances his 9% mortgage and gets a 6% mortgage with $50,000 dollars for $10,000 in car
and $40,000 in home repairs. He replaces his carpet, roof, driveway, furnace and purchases siding
for his home doing only overdue maintenance on his possessions. He also replaces the air
conditioner, seats, carpet, engine, transmission and tires on his 12 year old Firebird and Jeep
Grand Cherokee with about $10,000 making them like new. Three months later he files
bankruptcy. He keeps his house and exempts his car for $3,000 dollars and his Jeep for another
$2,000 dollars which is the book value. The $100,000 in credit card debt is gone and no Chapter
13. The 2002 GMC truck goes back or he redeems it for $10,000.

James no longer has a car payment. He lowered his monthly house payment and may owe less in
the long run on his home. There was nothing illegal about any of what he did. James planned his
bankruptcy instead of letting it happen to him. An even better example is in our next section on
mortgages.

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