Bankruptcy chapter7 and keeping rental properties?!

6 Replies

Is it possible to file for BK 7 and still keep any rental properties if that is your only source of income? Won't qualify for chapter 13 due to excessive debt and chapter 11 is too expensive. :roll:

Chapter 7 is a liquidation to pay off creditors; usually, those who are in Chapter 7 owe way more than what they own (they're underwater). This chapter of bankruptcy usually requires that the debtor qualifies. Link:
http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx

Originally posted by Excerpt from multiple links within that Chapter 7 link:
... If the debtor's "current monthly income" (1) is more than the state median, the Bankruptcy Code requires application of a "means test" to determine whether the chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor's aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $11,725, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $7,025. (2) The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor's consent) or will be dismissed. 11 U.S.C. § 707(b)(1).

...

To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b). Subject to the means test described above for individual debtors, relief is available under chapter 7 irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent. An individual cannot file under chapter 7 or any other chapter, however, if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. ...

Chapter 11 can be for individuals - but usually is used by businesses. Link:
http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter11.aspx

Originally posted by Excerpt from a link within that Chapter ll link:
...
The courts are required to charge a $1,000 case filing fee and a $39 miscellaneous administrative fee. The fees must be paid to the clerk of the court upon filing or may, with the court's permission, be paid by individual debtors in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. Fed. R. Bankr. P. 1006(b) limits to four the number of installments for the filing fee. The final installment must be paid not later than 120 days after filing the petition. For cause shown, the court may extend the time of any installment, provided that the last installment is paid not later than 180 days after the filing of the petition. Fed. R. Bankr. P. 1006(b). The $39 administrative fee may be paid in installments in the same manner as the filing fee. If a joint petition is filed, only one filing fee and one administrative fee are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case. 11 U.S.C. § 1112(b)(10).
...

Chapter 13 is what most individuals are placed into; this is intended to set up a schedule for repayment (sort of like a re-organization). Link:
http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter13.aspx

Originally posted by Excerpt from a link within that Chapter 13 Link:
... Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts are less than $360,475 and secured debts are less than $1,081,400. 11 U.S.C. § 109(e). These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor. Id.

...

You said you have excessive debt for Chapter 13, but did not say whether that was of a secured or unsecured nature. If you owe lots of unsecured debt, then you will probably have to go into Chapter 11.

From what was written within the links I supplied, it does not appear that in Chapter 7 you will be allowed to keep anything, unless all debts are paid in full withou need to sell something. Since Chapter 7 will sell off the property for you, why not just sell some yourself to pay back what is owed? Maybe after some property is sold, your debt will be lowered enough to qualify for Chapter 13?

My unsecured debt is only about $100,000.00 the secured debt is $2,231,000.00. One property is the bulk of it ($1,850.00) and the one that is keeping me "alive". At about 65% occ, but it is really tough when I have to make repairs on vacant units from that 65%. It's only worth about what I owe so that selling is not going to help anything. Just need to see if the stars and planets get properly aligned so that I can get out of this mess! You don't need to be a guru to figure out that I will be in good shape if I just stay sane while acting as the manager (dealing with the tenets is not fun) and counting the pennies for the "make-readys" Thank you for taking the time and posting your thoughts. I gratefully appreciate it. :roll:

Hi Greg,

It's been a while since you posted. How's it been going? I would definitely sit down with a couple of BK attorneys. Not the ones that advertise on the TV or on billboards because they only want to deal with really simple ones where they can use their templates and collect a check with the least amount of work. They are basically just BK mills. So find a "real" attorney that will help you based upon your abnormal situation.

Also it is my understanding that as long as the trustee determines that the property is underwater (or close) they have no reason to touch it. Can't squeeze blod from a stone. I think you actually don't have to include it as long as you've been able to make the payments.

Which brings me to a question: Say you do decide to include it in the BK can you still collect rents or will those go to the trustee until settled? My guess is the later but I could be wrong. Anyone?

JohnCl

Brian,

Doubtful. You have to tell the BK Trustee everything or go to jail. Do not pass go, do not collect $200. Those guys are serious. The trustee will follow the chain of title and see if there is any value there. Trusts don't offer asset protection anyway. Just concealment. Not wise to try to conceal stuff from a federal judge. They tend to be a little sensitive about that.

Hello John,

Sorry I never got back to you.  My current situation is as follow.  My rental property in Texas is doing OK.  I need to get a better manager, maybe a profetional this time.  My networth is about at 2.5m and on July 5, 2013 I decided to go take a motorcycle ride down to South America for the sake of my sanity since I was still in trouble.  That was over two years ago and I am still on my "trip".  Now I am thinking of selling the complex next year but keeping my two houses in California which are almost paid off and rented.  I am 52 now and would net just over 1m after taxes.  Maybe buy a 40" sail boat and make a business out of it doing tours through the Carribeans.  Is that something too premature for most people to do considering I am 52 y/o, too young to retire?

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