How to protect myself if in-laws file bankruptcy?

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My in-laws purchased a home and got a loan under my wife’s name prior to us getting married. They used my wife’s name because they weren’t able to get a loan themselves. They make all the payments on the home. My wife and I don’t live there nor do we have any intention of living there as it’s in a bad location. I had no idea about it until after we were already married.

The in-laws are close to losing their business and can barely pay their bills. A bankruptcy seems imminent and i’m pretty sure the house which is mortgaged under my wife’s name will be foreclosed. Is there anything I can do to protect my wife and myself against this? If it makes a difference they just transferred the Deed to my mom in-law, but the loan isn’t. The home is worth $ 180k and they still owe $ 350k since they’ve been making interest only payments.

I worked really hard to get my credit score over 800. I want my own house!!! I couldn’t even qualify for any of the first time home buyer programs because of what my in-laws did under my wife’s name.

Any advice would be greatly appreciated. My brother suggested divorcing my wife (just on paper) so I can at least avoid ruining my credit.

7 Comments
  1. Reply
    wizjp
    May 17, 2011 at 3:44 am

    uh..they own the house, she owns the mortgage, they are going to declare bankruptcy….why?

    The house debt is not theirs.

    Foreclosure will hurt your wifes’ credit. I’d talk to the bank about a short sale; but you still have the problem of them being on a deed and not a mortgage.

    You need a good real estate lawyer
    (all divorces look good on paper….another bad idea not much different than the one that got you into this mess)

  2. Reply
    Jonny
    May 17, 2011 at 4:35 am

    Legally she owns the home and owes all the money. Upon foreclosure, they will not go after your in-laws, they will go after your wife because the in-laws have nothing to do with the home. This will not be pinned on you because you do not have ownership in the home. Put the home up for short sale yesterday!

  3. Reply
    Because I Said So
    May 17, 2011 at 5:26 am

    wow that sucks. you better get an attorney and a realtor fast. sell that house asap and never do this again for anyone, whether or not they’re related to you!

  4. Reply
    Pagan Dan
    May 17, 2011 at 5:26 am

    I’m not sure what you mean when you say that your in-laws “used your wife’s name”. If they did so without her knowledge, this is criminal fraud and you and your wife will be “saved harmless”, as lawyers say.

    If, on the other hand, your wife co-signed the mortgage for her parents, then she is responsible to the creditor. Divorcing will not get you out of anything, because the creditor will come after her for payment. You will not be able to hide your assets or income from them.

    Your best course of action is to take over the house, and sell it.

  5. Reply
    Landlord
    May 17, 2011 at 5:38 am

    They can not include this house in their bankruptcy. It is not their house.

    This is your wife’s debt, she is going to have to pay it.

  6. Reply
    Jerry Morgan
    May 17, 2011 at 6:22 am

    I would visit http://diylegalinfo.com/bankruptcy_Links.html They have a lot of good legal advice on bankruptcy related questions.

  7. Reply
    Holland Bankruptcy
    May 17, 2011 at 7:09 am

    Your wife stays on the hook for the loan if your in-laws file for bankruptcy. If the bank forecloses and there is a deficiency (the bank sells it for less than is owed), they can also come after your wife for that.

    Whatever happens with the house, it will not affect your credit. You can still qualify for a loan on your own. One qualification – you may qualify for a lesser amount if you have to do it yourself and can’t count your wife’s income.

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