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It all depends on the state, really, but I can give you some probable answers. Your ex should really talk to a bankruptcy attorney though.

Value of her house 85K
Mortgages 23K
Actual Equity 62K

Credit card debt 40K
Student loans 18K

The homestead exemption in this state is 25K
Student loans are not forgiven in bankrupctcy.

Will the bankrupcty court sell the house?

It depends on which chapter of bankruptcy your ex files for. If she files under Chapter 7, the bankruptcy trustee will sell the house, pay off the mortgage, give $25,000 of the proceeds to your ex, and divvy up the rest among the unsecured creditors.

If, however, she files under Chapter 13 (probably the better move in this case), she'll get to make up any delinquent mortgage payments and pay off a certain percentage to her unsecured creditors. As long as she makes all her payments to the Chapter 13 Trustee, she'll get to keep the house.

Does she get to keep the 25K in exemption?

Yes. There might be a few hoops to jump through (in Virginia, for example, you have to file a homestead deed with the court), but she's second in line after the mortgage is fully paid. Of course, if she chooses Chapter 13, the exemption is kind of irrelevant.

Will the credit card companies attempt to take back some of the high priced items that she charged?(TV, video camera)

Visa and Mastercard won't, because they're unsecured creditors. Some stores on the other hand (Sears is the classic example), retain a security interest in durable goods that you buy on their card. If your ex files for bankruptcy, whether under Chapter 7 or Chapter 13, she'll have to decide whether to keep the stuff or give it up.

What about my daughter's $1800 piano which was purchased for cash five years ago.

If it belongs to your daughter, since she's not filing for bankruptcy (and if it's a gift made more than three years ago), she gets to keep it. If it's really your ex's piano though-- and the trustee is going to look VERY carefully at this, so be honest or you might get whacked with a charge of bankruptcy fraud-- then in Chapter 7, unless your state has an exemption for musical instruments or maybe household goods, the trustee will take it. Under Chapter 13, your ex would get to keep the piano as long as she makes all her payments. Again, an attorney in your ex's state will know the situation better than I do, and would be able to give her legal advice, so have her at least make an initial consultation.

Dave Tepper
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