Hold off on that bankruptcy filing

Q: My parents have both been told they have cancer. When their medical bills started mounting, they put all their adult children’s names on their property deed in an effort to prevent creditors from taking their home.

Unfortunately, now my husband and I are filing for Chapter 7 bankruptcy. We have no equity in our home, no savings and a retirement account that was drained to pay education costs for our four children.

What’s more, my husband has taken a 27 percent pay cut at work and our expenses exceed our income by at least $1,000 a month, which doesn’t include the payments we’re supposed to be making on our credit cards. We’ve been turned down for credit counseling and don’t see an alternative to bankruptcy, but our attorney has told us that the bankruptcy trustee can force the sale of my parents’ property.

I am frantic. My great-grandfather owned that property, and it’s where my father was born. My oldest daughter, an attorney, found two cases that seem to show that a trustee could opt not to sell such an asset, but our attorney hasn’t responded to my e-mails about these exceptions.

This is truly a nightmare. Is there any way out?

A: This is yet another reason parents should think twice, and then three or four times more, before adding children’s names to a real estate deed. Such an action typically fails to protect the property from the parents’ creditors and can make it vulnerable to the creditors of the children.

You can’t even get out of this situation by getting off the deed, said Los Angeles bankruptcy attorney Scott Bovitz. If you made this transfer within one year of filing, the trustee, or even one of your creditors, could ask the bankruptcy judge to block your ability to discharge your debts. In other words, you couldn’t get them erased in U.S. Bankruptcy Court.

Even if you waited longer after the transfer, Bovitz said, you could face problems. If the Bankruptcy Court decided that the transfer was meant to defraud your creditors, they could come after you for the value of the property.

It’s true that the trustee might decide that your partial interest isn’t worth enough to bother selling it, as the cases your daughter found seem to show, but the trustee also could decide to seize and sell the whole property under certain circumstances.

The trustee’s decision ultimately will be based on the financial issues involved, not pity for your parents.

“The trustee does not really care about the parents’ difficulties,” Bovitz said.

Your lawyer should be the one explaining all this to you and reviewing your options. If you can’t get his or her attention, consider hiring someone else or seeking help from your local legal aid society.

It may well be that the best course is not to proceed with your bankruptcy. This means you could continue to be harassed by creditors for debts you can’t pay, but it could help protect your parents’ property.

Besides, filing for bankruptcy won’t solve your cash flow problem, because even without debt payments you’re spending more than you earn. You need to look hard at all your options, including selling your house and finding something cheaper, taking on a second job (or going back to work if you’re not employed); and perhaps even asking your children for financial help if they are able.

No, it’s not the life you envisioned for yourself as you near retirement. But it’s the life you have, and the sooner you take action, the better.

Q: After I left my last job for a new one, I began to receive letters from my previous employer’s 401(k) management company encouraging me to roll my account into an IRA.

My financial adviser told me that it is best to keep my 401(k) where it is. He explained that 401(k)s are protected against any lawsuits that might be filed against me in the future, but an IRA isn’t. My mother says her accountant told her just the opposite.

A: Either your mother or her accountant is confused. Workplace retirement plans are protected from creditors by federal law, but the protection offered IRAs varies widely by state. In California, for example, money in an IRA can be vulnerable to creditors’ claims.