chapter 13 questions..

[bookworm2010]

I was all set to do a ch 13 in order to keep our house and a rental property and strip the second off the rental. Two lawyers said it can be done, this was after I told them that at the moment the rental income doesn't cover the mortgage.
A third attorney said I cannot keep both houses, since the rental home isn't income producing a ch 13 won't work.
Should I see a few more attorneys? should I just pay the houses and stop paying on the cc's.
wwyd?

[enginegirl]

hmmmmm.... I would ask the 2 that say you can keep both, what their plan is and the one that says "no" why "no".
In the meantime if you are planning on moving forward with a BK... I would also stop paying cc immediately.... and if your home has a 2nd mortgage and your 1st is more than the value of you home also stop paying the 2nd! Also If your rental is not income producing... just let it go.... why throw good money after bad??

[despritfreya]

The attorney who told you that you cannot keep the rental unless it has cash flow sufficient to cover the costs associated with the property is correct if you are not proposing to pay 100% of all allowed claims. You cannot keep property that is 1) not exempt and 2) not necessary for your effective reorganization if keeping such property is at the expense of your creditors.

So, if you want to keep the rental you need to find a renter who will rent for an amount equal or greater than the 1st mortgage, property taxes, insurance, maintenance etc. In addition you need to look at your 1st mortgage documents to make sure there is no "assignment of rents". If there is you need to discuss the corresponding cash collateral problem you will have with your attorney.

Des.

[rbaronex]

Bookworm, I'm kind of in the same boat. I have my primary home with a $54k Heloc that I am planning to strip on a ch 13, a second home that my mom of 78 years of age lives in. The Second mortgage is $1100 per month, she contributes $900 sometimes more per month when needed. Last month she gave us $2500.00 towards mortgage and expenses. Been helping me out since spouse is not working. My concern is, will the trustee recognize this as income? I anticipate my spouse to be going back to work soon, which would remedy that issue (2 or 3 months down the road), but for now, to avoid a blood sucking cc from garnishment against my salary, I need to file a 13 ASAP. I also have a $24k asset that I am keeping and throwing into the plan. If they don't recognize my mom's contributution to household expenses, I'm in trouble....

Thanks for listening...

-Rob

[despritfreya]

I'm kind of in the same boat. I have. . . a second home that my mom of 78 years of age lives in. The Second mortgage is $1100 per month, she contributes $900 sometimes more per month when needed. Last month she gave us $2500.00 towards mortgage and expenses. . . My concern is, will the trustee recognize this as income?. . . I also have a $24k asset that I am keeping and throwing into the plan. If they don't recognize my mom's contributution to household expenses, I'm in trouble....

In your case, "recognizing" the contribution of mom is not the issue (her contribution must be reported for "means testing"). She is a "renter" for all intents & purposes. The problem is your attempt to keep an asset that is not necessary at the expense of your creditors. If mom is not contributing enough to cover the cost of the upkeep of the 2nd property, then the property is costing you money thus taking money from your creditors. So, once again, if the income off the unnecessary 2nd home is less than the overall cost to keep the home and, unless you are proposing a 100% payback, the Court/trustee is not going to allow you to divert $$ to keep the 2nd home.

On the other hand, depending upon the health of mom, you may be able to argue that you are contributing to the support of an elderly family member thus defeat the Trustee's argument. I have made this argument (successfully) before, however, in the end my clients have lost the 2nd home as they simply never could afford to keep the home and were not being realistic when they initally filed.

Des.

[andy158]

We have a second rental home that my mother lives in. She is 81 years old and has no assets at all and we do contribute to her support as noted when we filed. We rent to her just enough to cover the mortgage, insurance and up keep and "break even" at tax time. Our lawyer said it would be a wash on our schedules when we filed and it should not affect the confirmation of our bk. It was confirmed with the property being paid for outside the plan. No more questions were asked.

[biotechsolution]

You have to also realize you can't strip a second mortgage of a second home in a chapter 13. You'd be doing a cramdown of the rental property but you have to pay it off within the plan time plus you might have to pay more to your unsecured.
talk to that 3rd attorney.

[despritfreya]

You have to also realize you can't strip a second mortgage of a second home in a chapter 13. You'd be doing a cramdown of the rental property but you have to pay it off within the plan. . .

I don't think there was an issue of stripping the 2nd on a rental. However, as it relates to a rental, if there is no equity to support a 2nd lien at all, you can strip. If there is some equity you can cramdown. You are correct. . . the cramdown must be paid over the life of the plan thus normally making it too expensive to do.

Des.

[HHM]

The other problem you can sometimes run into with 2nd mortgage lien strips and cram downs is the chapter 13 debt limits. If you have other debts or multiple properties, you could quickly approach the $336,000 unsecured debt limit or the $1.01MM secured debt limit.

Even if you can cram down, the trustee still objects arguing that the money paid to cram down should go to your unsecured creditors and not so you can keep a property not necessary for reorganization.

Also, as desp has already pointed out, the property cannot be cash flow negative, you need either (1) a renter that can pay rent to cover costs or (2) an external source of funds (not property of the estate) to fund the negative cash flow (e.g. family member, partner, friend etc).

So, the only time this actually works is if
(1) the properties are cash flow even (or positive), and
(2) your b22c shows no disposable income (this is the chapter 13 means test). or
(3) the 2nd mortgages are worth zero (or very little), and therefore nothing needs to be paid to them in the plan.

Actually cramming and paying is very hard to get done, usually the debtor simply can't afford to do it notwithstanding trustee objections.

[bookworm2010]

Thank You for all the replies!! I appreciate all the info.