going into bankrupcy before med school

[choocoman]

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my friend conjured up a crazy idea, which is kinda intersting, not to mention unethical. can anyone poke holes in it?

say you have good credit. after a year of working or whatever, you secure a mortgage loan and you buy a house before med school. you take out a home equity loan for the cash value of the house, and go into foreclosure. its on your credit report for seven years. after seven years, it goes off your record - like it never happened. during these 7 years, your credit is screwed, but it doesnt matter cuz you dont need it. by the time you finish residency (~9 yrs, so you have 2 years to rebuild your credit), you'll build up a brand new spanking credit, along with your home equity monies that helped put you thru med school.

 

[CaMD]

my friend conjured up a crazy idea, which is kinda intersting. can anyone poke holes in it?

say you have good credit. after a year of working or whatever, you secure a mortgage loan and you buy a house before med school. you take out a home equity loan for the cash value of the house, and go into foreclosure. its on your credit report for seven years. after seven years, it goes off your record - like it never happened. during these 7 years, your credit is screwed, but it doesnt matter cuz you dont need it. by the time you finish residency (~9 yrs, so you have 2 years to rebuild your credit), you'll build up a brand new spanking credit, along with your home equity monies that helped put you thru med school.

One problem is that you may need good credit to secure the loans to pay for med school. On the Georgetown secondary they go on and on about how you need to give them a credit report etc. --Did anyone else find that secondary a turn off, btw? The emphasis on credit and how they aren't bothering to look at our apps because so many people don't finish them anyways made me think less of them.

 

[choocoman]

One problem is that you may need good credit to secure the loans to pay for med school. On the Georgetown secondary they go on and on about how you need to give them a credit report etc. --Did anyone else find that secondary a turn off, btw? The emphasis on credit and how they aren't bothering to look at our apps because so many people don't finish them anyways made me think less of them.

a home equity loan could theoretically cover 4 years of medical school plus a few trips to hawaii. you graduate from medical school debt free

thus, the question is do residency directors view credit reports via background checks?

 

[samurai_lincoln]

a home equity loan could theoretically cover 4 years of medical school plus a few trips to hawaii. you graduate from medical school debt free

After one year? How much equity do you think you are going to have (if any) after that short amount of time? Especially given the fact that real estate prices will be flattening out substantially as interest rates rise.

 

[SaltySqueegee]

When you file for bankrupcy, you need to repay all of your debt to the extent of your ability, which means forking over any liquid assets you may have in your name.

Now if you can figure out a way to put the money in your dog's name or a close friend, then you might have a plan. Of course trust is key, so the question is:

How well do you trust your dog? 😀

 

[SaltySqueegee]

i know very few 22-23 yr olds with significant liquid assets...hell, they can take my 1992 ford tempo. lets go shopping!

The point being, is that you would have taken equity out of the house in the form of a payment, which can easily be taken right back if you claim bankrupcy.

 

[samurai_lincoln]

a 250k mortage isnt that hard to secure with just 5% down. especially if you've paid off your credit cards in college. they also check your debt:income ratio, which will be excellent. some banks only request your last 2 paystubs

some banks , not all,will hand out the 100% full value of the home. not at once, but definitley within a 1-2 yr time span...leaving u still with some time to rebuild credit.

I think you may be confused as to what a home equity loan entails. The key word is "equity" which implies that the home has to be worth more than what you owe on the mortgage. You would need to either 1) put down a crapload of money up front, or 2) have some massive appreciation, to have any substantial equity after such a short time. If the former, why bother going through all the hassle.

Edit to add: this applies to the OP as well... if you have equity in the house, why not just sell the freakin' thing, and avoid bankruptcy altogether? Bankruptcy is primarily geared toward unsecured debts, like credit cards, or undersecured items, like cars, that are worth less than you owe.

 

[SaltySqueegee]

LOL @ Slackerjock...

Hindsight is 20:20... Haha.. 👍 😀 😉

 

[samurai_lincoln]

a home equity loan could theoretically cover 4 years of medical school plus a few trips to hawaii. you graduate from medical school debt free

thus, the question is do residency directors view credit reports via background checks?

Can't speak to hospitals specifically, but many employers do, especially if you will be handling any financial matters. Still, I wouldn't think that a bankruptcy 3-4 years before starting residency (assuming clean slate thereafter) would be a death knell.

 

[samurai_lincoln]

LOL @ Slackerjock...

Hindsight is 20:20... Haha.. 👍 😀 😉

What, he was so embarassed that he removed the post entirely?! The quote remains as a permanent shrine, however.

 

[adamj61]

In some places this would work (big appreciation) provided you could launder the money. I would also not do this married...but it would be a good idea to be involved with someone who had credit....in case you needed it for whatever reason.

To launder the money Just look for some crack dealers as they did in Office Space 👍

 

[skypilot]

Hey if you have moral standards low enough for this scheme you can just overprescribe Oxycontin or overbill Medicare to pay off your med school loans. 🙁

 

[medic170]

Hey if you have moral standards low enough for this scheme you can just overprescribe Oxycontin or overbill Medicare to pay off your med school loans. 🙁

Exactly

 

[SanDiegoSOD]

Dude, does your friend know ANYTHING about the banking system? You can only get a home-equity loan if you have equity in your home - that is, a portion of your original home loan is paid off, meaning that you own a certain percentage of your home while the bank owns the rest. You cant take a home equity loan out that is larger then the portion that you own.
Also, to get to this point, you need to have incredible credit to buy a home at a young age with no income for the next seven years. Plus, you generally need to put down 10% of your homes value to get a home loan in the first place; in this example, that would mean you need $25,000 in liquid assets before you get the originial mortgage.
So in conclusion, this plan (while exciting) is not going to work, even in the wildest con mans dreams.

 

[WatchingWaiting]

my friend conjured up a crazy idea, which is kinda intersting, not to mention unethical. can anyone poke holes in it?

say you have good credit. after a year of working or whatever, you secure a mortgage loan and you buy a house before med school. you take out a home equity loan for the cash value of the house, and go into foreclosure. its on your credit report for seven years. after seven years, it goes off your record - like it never happened. during these 7 years, your credit is screwed, but it doesnt matter cuz you dont need it. by the time you finish residency (~9 yrs, so you have 2 years to rebuild your credit), you'll build up a brand new spanking credit, along with your home equity monies that helped put you thru med school.

Your scheme would have quite a few challenges. The biggest problem with getting the loan is that you would need to have enough income to actually show that you could make the monthly payments on the loan. If you were working for a year prior to med school, you'd be okay. The average straight-out-of-college pre-med, obviously, would not. If you have some reasonable amount of income plus a decent credit rating going into the transaction, you could take out a sub-prime, interest-only, variable-rate, no-down-payment five-year loan, which given that you plan on going bankrupt, is no problem and buy a reasonably expensive house. Then, just find a compliant real estate appraiser one year later (this is not a problem at all-- shop around if necessary), and take out the home equity loan based on the new, sketchy, higher-value one year later.

In addition to the income requirement, you would have problems with getting rid of this liquidity. Prior to filing bankruptcy, you would have to come up with some method by which you wasted the money to tell the court (extravagant partying for a few months in Europe or something) and you would have to either hide it overseas or offload it onto someone you deeply trust and who is unethical enough to participate in this transaction but not so unethical as to take your money.

 

[WatchingWaiting]

Another possibility would be to open up a lot of lines of credit and go on a credit card binge (take out a lot of cash advances as you go). The cash advances you funnel to whatever agent/overseas bank account will be your tuition paying source. The stuff you buy should be stuff that can easily be resold for a high fraction of your buy price (maybe cars or jewlery on ebay???) without too much effort. You could probably generate one to two years worth of tuition by this method. It would be a lot easier, though, of course, just as immoral, as the original plan.

 

[ken37]

Then, just find a compliant real estate appraiser one year later (this is not a problem at all-- shop around if necessary), and take out the home equity loan based on the new, sketchy, higher-value one year later.

People have done just this, and gone to jail for it. I think the risk-reward ratio is better if you just robbed a quickie mart.

Honestly, the OP's idea, besides being unethical, is just too full of holes to work, to wit:

1) Most states only allow you to borrow up to a certain percentage of your house value in equity. For example, in Texas, you can only borrow up to 80% of the appraised vaule, and this amount is reduced by any existing liens on the house. So, if you take a 95-100% loan, you'd have to get a substantial increase in equity before you could even borrow anything at all. Texs also has a 1 year waiting period from the time of purchase to the time you may take out an equity loan.

2) The FHA got ripped off quite a few times in the 80's by scammers who would buy a house, appraise it high, sell for that high price to a sham buyer, and walk away with the money while the house goes into foreclosure. Since then, they've gotten a little more stringent on appraisal guidelines, and investigate many sorts of fraud if there is an FHA loan involved. It is easy to find an appraiser who might be able/willing to go up a few percenteage points on value, but not the large amount that you would need for this scam to pay off.

3) As above, private lenders don't like to be ripped off either, and take similar precautions.

4) Even if you did succeed in getting some equity out, banks and bankruptcy courts are pretty good at tracking down money, and even if they can't, if they can see that something fishy went down, the court can just deny the bankruptcy claim. Also, fraud is a crime, and defrauding a lender would probably get the perpetrator a ticket to a home away from home for 2-10.

5) Even if you could get away with it all, the time involved in making this work makes it a very crappy payoff for an illegal scheme.

6) There are much easier ways to make money illegally. For example, pimping, making crank, ripping off grandma's savings by selling her some harebrained investment scheme, ...

Anyone who could actually make this scheme work, would have to know a lot about the system, and would never do it because it's much easier to just make money legally in real estate if you know how it works.

Ken

 

[SaltySqueegee]

People have done just this, and gone to jail for it. I think the risk-reward ratio is better if you just robbed a quickie mart.

Honestly, the OP's idea, besides being unethical, is just too full of holes to work, to wit:

1) Most states ...

Anyone who could actually make this scheme work, would have to know a lot about the system, and would never do it because it's much easier to just make money legally in real estate if you know how it works.

Ken

So you've given this some thought...

Sounds like you're speaking from experience. 😉 😀