Using bankruptcy strategically to aquire more real estate
Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes
Using bankruptcy strategically to aquire more real estate
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Investor · Sterling, VA · Member since 2014 · 26 posts · 32 votes
10yNot to stand on my soap box, but even if a legal strategy exists, it still feels "wrong" to me. In this industry (and in this world), our word is our bond. Borrowing money without the intention of ever paying it back feels disingenuous at best, and dishonest at worst.
I think there is a time and a place for bankruptcy, but it's a tool of last resort, not an investment strategy. This isn't about legality, it's about what kind people we choose to be. It's strategies like these that give investors a bad name.
Jerry
44 Replies
- Real Estate Investor · Rancho Santa Fe , CA · Member since 2016 · 323 posts · 107 votes10y
I am Waiting hopefully a lawyer come in I know some thing but I might be wrong so I want to here from the pros on this subject.
- Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes10y
Yea I am planning on just sitting down with my lawyer and just tell them point blank what it is I am trying to do and ask them the best way to go about doing it.
- Dallas, TX · Member since 2014 · 8 posts · 25 votes10y
I am not a lawyer but I managed bankruptcy operations for a servicer when borrowers filed bankruptcy. I think its important to understand what bankruptcy really is as it is often times misunderstood by many including those in the media. Bankruptcy at its most simple is a way for persons (natural persons like you and me but also business entities) to either discharge (basically have forgiven) or reorganize certain debts. In petitioning for bankruptcy relief, the filing entity will have to list assets and liabilities to paint a complete financial picture. Creditors of the filing entity or debtor will file claims representing obligations owed to them by the debtor. In a liquidation, assets can be liquidated in order to satisfy creditors. In reorganizations, it may be possible to renegotiate or even force new terms on creditors, especially if the altered terms can be shown to net more to the creditors than a liquidation of assets today.
There is a vast difference between filing bankruptcy as an individual and filing as a business entity. You do not want to be in a position to file personally. Ford, Trump, and Kiyosaki all had business ventures file bankruptcy. Because they were business entities, the faces we think of as business leaders behind the organizations had their personal wealth and assets shielded as a result of asset protection strategies devised long before the bankruptcy. The bankruptcy was limited to the assets and liabilities of the corporate entities that filed for bankruptcy protection. In Trumps case, he has used bankruptcy to renegotiate terms with creditors in a Chapter 11 bankruptcy reorganization. Kyosaki's LCC filed Chapter 7 to avoid paying a judgment against it brought about by allegedly failing to pay royalties to business partner. I believe the judgment was for $45 MM, whereas the LLC only listed assets of $1 MM, so there is a very limited loss, especially to Kyosaki who's personal holdings are protected since the LLC engaged in the business activities and BK.
Long story short, BK doesn't build wealth. The key lesson to take away: as you build wealth, be sure to have a prudent asset protection strategy. The people listed above did, and as a result, had limited exposure to their overall personal wealth when they faced issues with individual investments or ventures.
- Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes10y
One of the strategies I use to buy houses is to use my credit cards which are my personal cards. I have 6 houses 1 is my primary which i have only 20% equity in after doing refi to buy other houses. and the other 5 houses are under my LLC which includes me and my wife as members. In my mind I should be able to purchase property using those cards putting the properties in someone else name, reassign my stake in the LLC to a minimum. If i was to file a personal bankruptcy after taking these steps I don't see how they wouldn't be considered growing wealth through the process of a bankruptcy. I filed when i was 18 under different circumstances and I know the laws have changed since then so I would need to know what loop holes and huddles will be involved but I just feel like it can be done. $300,000 in credit card limits goes a long way when buying investment properties where I live 10 plus that rent for 500 plus easily.
- Investor · Sterling, VA · Member since 2014 · 26 posts · 32 votes10yNot to stand on my soap box, but even if a legal strategy exists, it still feels "wrong" to me. In this industry (and in this world), our word is our bond. Borrowing money without the intention of ever paying it back feels disingenuous at best, and dishonest at worst. I think there is a time and a place for bankruptcy, but it's a tool of last resort, not an investment strategy. This isn't about legality, it's about what kind people we choose to be. It's strategies like these that give investors a bad name. Jerry
- Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes10y
Jerry I hear you, but from my experience the system is a disingenuous system because explain to my how the bank can deny a person a loan to purchase a home for him and his family which the payments on would be lower then his rent payment, but that same bank approves that same person for a car loan that he can't afford along with a few high interest credit cards. On one hand they could set this person up for success by approving the loan for the home but they much rather send him down a road of disparity with a car note and some credit cards. This is what feels wrong to me Jerry. The idea that the BIG guy gets to pick on the little guy like that. In my mind its nothing that we as the little guy can do to the BIG guy that is disingenuous we are just playing their game the way they play it.
People use these justifications because our first instinct is to protect ourselves. If your being honest, you straight up want to steal. The BIG guys always need to charge more to pay for everyone targeting them. A bank should have No responsibility to make bad loans. Your rent is no indication of what you can afford to pay. The same attitude is the real reason the housing market collapsed.
- Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes10y
Well I am glad to see that everybody on here is a saint, or maybe you come from privilege that I can't relate to. I wasn't surrounded by people who gave sound financial advise, nor did I have parents or grandparents to give me a loan or a gift for my first investment. I say that to say this, If I was to base my success on the bank telling me yes or no and leaving it at that I would not be where I am today. They told me no over and over until I bent the rules to my advantage. I can't except everybody to relate. Maybe you all have great jobs with great incomes, a bread winning spouse, and great relationships with banks. If so this this blog is not for you, but for those who find it hard to do things the "traditional way". I refuse to let a NO determine my destiny. P.S. Pete rent can be used as an indication of what you can afford. You can have no credit and get approved for a mortgage using rental history of 2 years or greater by going to a mortgage company that does their own underwriting. This is the kind of stuff you have to know when you trying to come from nothing to something my friend.
- Flipper/Rehabber · Austin, TX · Member since 2016 · 39 posts · 37 votes10y
Originally posted by @Marquis W.:
Well I am glad to see that everybody on here is a saint, or maybe you come from privilege that I can't relate to.
I'm pretty sure that most people who don't come from privilege DON'T plan on defrauding banks. And just because they don't look out for your best interest, doesn't mean you can steal from them. You don't rob a liquor store because it kills your liver.
You can certainly use credit cards or any type of unsecured loan to buy property in someone else's name and then not pay off the cards or the loans but be prepared to have bad credit for a number of years. There's no debtors' prison so it's not exactly stealing or a crime. I would consider it a smart move but 99.9% will spend the money at a shopping mall instead.
- Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes10y
Check out this link
- Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes10y
Exactly Jassem, I filed chapter 7 at the age of 18 because I did exactly what you just said $20,000 in credit card debt from shopping malls and had a $40,000 truck at the age of 18 with no job!! But I see people with jobs and decent credit get denied for a $60,000 for a mortgage all the time because of technicalities when at 18 I was given $60,000 without even showing a pay stub. You can't tell me the system is flawed and its not by incident.
- Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes10y
Jack stealing is illegal I think you got the wrong post, no one is talking about stealing anything here. How is its considered stealing if at the end of the day you have to go in front of the judge for it to be approved? Oh and your right everybody that doesn't come from privilege doesn't think about doing what I am suggesting thats because they to busy buying the next pair of $300 pair of shoes and driving the latest ride. Because when you come from where I come from its much easier to look like you have something then to actually have something.Credit cards and Cadillac handicap my community because why go through all the BS the banks put you through to get legit when its so much easier to get the "easy credit". But I am the criminal right for not wanting to except the limits that financial institutions put on me?... ok if you say so.
Probably because it is much easier and cheaper to repossess a car than it is to foreclose on a home and also because the loan term is usually at least 3-6 times longer and typically a larger loan amount so the lender will want to see more stability.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes10y
Just having coffee reading a few threads.
Reading some posts just makes me drop my mouth open, further posts get my chin closer to the floor.
A couple of those "successful" people would steal candy from a baby, stand there and eat it in front of them! They aren't even successful human beings in my book.
I have plenty of money, at least now I know I didn't have to sell my integrity to get it!
This thread is already taking up too much bandwidth! :)
- New Haven, CT · Member since 2016 · 90 posts · 99 votes10y
Absolute scumbag you are Marquis.
- Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes10y
True but also remember that house you buy will appreciate and if you default on it the bank will more then likely no loss any money on it because of PMI and/or the Hefty down payment you put down on it vs a vehicle that will depreciate soon as you drive it off the lot and the excess mileage you put on it afterwards. It might be cheaper to repo the vehicle but when they do get it back a lot of times it worth way less then the reminding balance. In the case of credit cards they never get any of that stuff back you purchased so its even more loss to the bank. Real Estate on the other hand banks don't take as big of hits if someone defaults because it will get sold or auctioned off and they will get the majority and in some cases more money back originally owed.
- Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes10y
Hey Matthew, you have every right to call me a scumbag freedom of speech. Just like I have every right to file bankruptcy. God Bless America!!
- Investor · Independence, MO · Member since 2016 · 89 posts · 70 votes10yWhat a POS. I hope it all backfires on you and you loose everything. You are part of this countries problem not its solution.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Marquis W. its one thing to be a kid and get over your head like you describe.. its another to create a scheme like this..
I think I would keep this to yourself.. I know for me personally you would be the last person I would consider doing anything with..
And of course you may not need anything from anybody.. but whoa that's some attitude :)
But as you say I have seen many folks use the BK rules when they get in a pinch.. and that's what they are for... but to create a scnerio where that's your end game.. well to me that would not be anything to be proud of.
- Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes10y
@Marquis W. what do you think the guys running the 'big banks' do when you file for bankruptcy? Go sell one of their boats? Or do you think they make up for it on the next loan to your grandma, or your sister, etc? Your idea of taking down the man is really only making it harder for the people you say you came up with.
- New Haven, CT · Member since 2016 · 90 posts · 99 votes10y
I'm sure the Albany Fire Department and Capt. Bobby Spargo would love to know you are openly advocating to commit bank fraud and have in the past, and I'm sure a few other people in the government would like to know as well.
- 10yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
The original purpose of bankruptcy legislation was to allow people who has overwhelming debt that probably could never be repaid a fresh start; their assets would be liquidated and distributed to creditors, except for a small amount that they would be allowed to keep to survive until they got on their feet.
However, as with all things legal, those with economic, social and political agendas couldn't help but change the original laws to reflect their special interests.
So, with the support of the business community, corporations where given the right to seek bankruptcy protection. Unions, concerned with job preservation in companies they helped to bankrupt through wage extortion, helped get reorganization legislation added to the bankruptcy code, allowing companies to continue operating (and employees continue working), while creditors were shafted with court approved cram downs, essentially allowing courts to approve creditor payments in reorganization less than they would get in liquidation.
Consumer advocates, not happy with just the original purpose of bankruptcy, were able to pass various revisions, which resulted in individuals being able to obtain hugh amounts of debt for consumer goods and living expenses, and turn around and discharge those debts in bankruptcy, no matter how high their income. Further, states began competing for most lenient debtor status, allowing more and more property exemptions from bankruptcy. So that in Texas and Florida, a person's residence of unlimited value, cash value of life insurance, annuities, and retirement funds, IRAs, etc, were protected and not subject to creditor attachment. Anyone with up to say $10,000,000 could arrange his affairs so that he could keep the $10,000,000 and shaft his creditors utilizing bankruptcy laws. Former commissioner of major league baseball Bowie Kuhn did just that when the law practice that he was a partner of filed bankruptcy; he moved to Florida, purchased a $3.5M house, transferred another $3M to annuities, filed bankruptcy, discharged his debts, and sold the house to provide cash to begin a new.
About 25 years ago the pendulum swung the other way. Recognizing that, theoretically, at least, a person could borrow $5M, place it in exempt assets, and file bankruptcy, discharging the $5M debt and keeping the $5M in exempt assets, new legislation radically changing bankruptcy laws was passed.
The significant changes were
1. A persons anticipated earnings for the next five years after certain expenses must be used to pay creditors if sufficient income is anticipated to exist. So they must use reorganization and not liquidation in these circumstances
2. Debt incurred in anticipation of a bankruptcy filing is not discharable.
3. The definition of fraudulent conveyance was expanded.
4. Use of Homestead exemption (personal residence) was limited to those who had resided in that state for a minimum of the previous 3 years.
5. The definition of retirement assets for Federal purposes was tightened.
The result was a rush of bankruptcy filings before the new law went into effect. Since, the most flagrant situations have been eliminated. However, in no small part due to the sensationalized cases, the lack of understanding bk laws by the media, and the technically correct but wholy misleading claims of attorneys advertising, most people filing bankruptcy are extremely disappointed with the results.
- Investor · Albany, GA · Member since 2015 · 39 posts · 8 votes10y
Bank Fraud?? No thats what the guys at Goldman and Sachs did my friend. I can advocate what ever I want to and Yes I work at the fire department in Albany Georgia where I see poverty, a struggling school system, and I also see homes being rented out that are not even fit for a dog to live in by owners who are millionaires and who I think are the real scumbags. But I am being called a scumbag because I see a "LEGAL"!!! loop hole in the system. Excuse me for be honest with my thoughts next time I will keep it to myself... because I see the world is full of closed minded people who care more about a system that cares nothing for them then the people who really depend on you. Any means necessity! If I want it I will have it point blank, you don't have to like my way for going about getting it you don't have to like me or respect me. I will sleep just fine trust me. In the words of Frank Sinatra " I did it my way"
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