Five worst Kentucky Bankruptcy and Foreclosure Mistakes
Ignoring a lawsuit or foreclosure as a debt collection or foreclosure mistake
This is the number one of the five worst Kentucky Bankruptcy and Foreclosure mistakes. It often happens and it produces the maximum damage you can do to yourself. There are about 100 to 120 different defenses you can make to a lawsuit. When people ignore a lawsuit, they often lose by default, and a judgment lien is often issued against your real estate or personal property. Income taxes and student loans do not even have to file a lawsuit to attach a home, or even your social security check.
As soon as a creditor obtains a judgment, they can seize bank accounts and wages or start foreclosure on the home they now have a lien on. You are required to file a response in Kentucky to a lawsuit within 120 days. By not raising the affirmative defenses in an answer, you waive the affirmative defenses forever. By ignoring the lawsuit, you essentially agree to garnishing your bank account, wages, and attaching and perhaps selling your home. The Jefferson county commissioner will reccomend the foreclosure sale or judgment if you fail to respond.
I have even seen furniture and cars attached and hauled away to sell. After a judgment has attached a house, you may or may not be able to file bankruptcy and release the lien. If being sued, at least talk to a qualified attorney who represents debtors. It is far better to plan a bankruptcy or file an answer before they get a lien on a home. You may not be able to get rid of a lien or lose assets you cannot get back by ignoring it.
Telling a Creditor you intend to pay or paying a debt that is in collections as a mistake.
This is number two of the Five worst Kentucky Bankruptcy and Foreclosure Mistakes. It is the one mistake which causes you to lose the statute of limitations defense. If you tell a creditor, “You intend to pay,” you are essentially telling that creditor you acknowledge that debt as valid. If he can get that in writing, the statute of limitations starts all over again. You lose many of the defenses you had in court by admitting liability.
You never want the creditor to record your conversations with them. They will use it against you in court. You do want to record their conversations where they may admit they have problems collecting. Do not, however, expect them to offer any real help. Their job is to collect the debt. They have already done the maximum damage they normally do when they report the account. You get little or no benefit after that from repaying the debt.
If you pay a debt in collections, your credit score will often drop in the short run. It is common for a collection agency to file a negative comment on your credit report. But it is relatively rare for them to file a lawsuit. The creditor is the only person with any right to file a lawsuit against a debtor. The collection agency is merely allowed to service the debt and contact you. They are not the real party in interest typically unless they purchase the debt.
Cashing in retirement or mortgaging a home to pay unsecured debts as a mistake
This is number three of the five worst Kentucky Bankruptcy and Foreclosure mistakes because you make your financial situation worse. Medical debts, credit cards, unemployment overpayments, unpaid traffic accidents, and other unsecured debt can be discharged in bankruptcy. Don’t fall for the idea that mortgaging your home or cashing in your retirement is a good way of paying off unsecured debt. You are decreasing the amount of assets and unsecured debt you have. You increase the secured debt.
Only a few debts cannot be discharged.
- fraud,
- domestic support
- recent taxes,
- student loans or
- intentional injuries.
- If you don’t make your mortgage payments, you lose your home to foreclosure.
If you borrow against your home and you remain in debt or have a bad budget, you may still end up in bankruptcy. All you did was waste the equity you had in the home.
You often only increase your monthly expenses making it more likely that you will have to file bankruptcy. That second mortgage is usually not dischargeable in Chapter 7 or 13 unless it can be stripped.
Transferring property for less than the fair market value before filing a bankruptcy mistake.
If you Transfer property for less than the actual value to friends or relatives before filing, you create a fraudulent transfer of assets or preferential assets. Often if you had just kept the property, you could have exempted and retained the property. As soon as you transfer property, it no longer belongs to you, and you can’t exempt it.
You can often convert property. For instance, if you have 50,000 in the bank, you can repair the furnace, air conditioner deck, and driveway. Repairing and maintaining these items would not increase the value of the home. They are maintenance items you would eventually have to spend anyway. While you are in a bankruptcy you may be limited in the repairs you can do so now may be the time to spend down some assets while you are stopping a foreclosure.
The exemption for a home is over 25,000 for each person on the deed in 2022. But you can use half of that real estate exemption for other property as a wildcard exemption. There are also other exemptions to keep a car or other property. These exemptions are wasted if you don’t use them, and transferring property within a year or two before filing bankruptcy is always a risk.
Not filing tax returns before filing is a bankruptcy mistake.
If you don’t file tax returns or file fraudulent returns, even bankruptcy won’t help. You are not supposed to file a bankruptcy case unless the prior four years of returns have been filed. When you do file a bankruptcy, the IRS is immediately notified so they can have the opportunity to file a claim. If you have not filed tax returns, the IRS files an objection in any Chapter 13 case. Until you file, these returns your Chapter 13 case cannot be confirmed. Even if they are filed, the trustee and court will then review them.
When you fail to file, the refunds are often reduced by late filing penalties. Tax returns that are less than three years old must be repaid during Chapter 13. In Chapter 7, these debts are not discharged at all. There is also a 10-year statute of limitations on collections which never runs if you fail to file.
The IRS can do a 100% garnishment of wages and bank accounts if they believe you are attempting to avoid paying the tax or are filing fraudulent returns. The interest and penalties can rapidly increase any income tax debt. The IRS often explains how they can attach even the dirt under a taxpayer’s shoes. Although they can attach a retirement account, I have never seen them take money from a retirement account. They can even attach social security funds.
