Rent in Bankruptcy Expenses

[Mike1944]

Hi everyone, this forum is very informative.

I have a question about rental expenses.

I am working with my mom on her bankruptcy. We are getting set to meet with an attorney, but I have been researching things a lot myself. My dad passed away several years ago and my mom got into quite a bit of trouble with credit cards. Last year, she was able to sell her house (she was about to lose it) and ended up just about breaking even.

Anyway, I own a 2 family home. I live in one side with my wife and son. We have typically rented the other side out. The unit was open when my mom got into trouble, so she has been using it rent free for about 10 months. My mom is 72 years old with $1200 per month in SS retirement and $800 per month from a pension that carried over from my dad. Living here free, she is about $300 per month in the hole. Without the credit card debt, she would have about $400 in disposable income based on my figures. She owes close to 50K in credit card bills.

I fear they will push her into Chapter 13 because she has no rental expense and I have been absorbing a lot of the related costs for water/sewer and so on for the other unit. The market rent for the unit is about $800 per month. My wife and I are concerned because we don't think that we can make it ourselves without any rent coming in from the unit for the next 3-5 years while a potential plan is in place. If I were to start charging her rent, I am not sure the court would accept it due to us being family.

Any thoughts on how to approach this issue? My wife believes she might have to move into another apartment for a while if need be. But, I just don't know. My moms plan is to try to find a senior low income apartment, but the waiting lists are long. So, no way to know when one will become available. Could be another year or so on the wait lists.

[andy158]

First off you need to charge her some kind of rent. Your family comes first and its not fair to you even though it is your mother.

The 50k in cc bills is draining her. She needs to get rid of it especially at her age.

If she has no assets a chapter 7 would be in her best interest.

It doesn't matter if you rent to family. A tenant is a tenant. My mother has been in one of my rentals since 2002. Similar situation. Dad passed away, big drop in income and she couldn't keep up the house on her own with her SS and meager pension. Sold the house to pay off debt and moved into a rental. I charge her $300/mo on a rental I can get easily $550/mo for. I am breaking even.

Any siblings to help? My two sisters split mom's utility bills. We try helping her all we can without dampering our own finances.

[LadyInTheRed]

Living here free, she is about $300 per month in the hole. Without the credit card debt, she would have about $400 in disposable income based on my figures.

She should stop paying on those credit cards and pay some rent instead. You might even want her to sign a rental agreement. She should ask an attorney weather it is adviseable to wait to file until she has a paid rent for a few months. But, I doubt that is even necessary. If she puts a reasonable rent on her schedule J, who her landlord is will probably never come up.

[Slingerland]

She should stop paying on those credit cards and pay some rent instead. You might even want her to sign a rental agreement. She should ask an attorney weather it is adviseable to wait to file until she has a paid rent for a few months. But, I doubt that is even necessary. If she puts a reasonable rent on her schedule J, who her landlord is will probably never come up.

As a landlord, I rent to my mother. We have a written lease, and I charge her fair market rent (but I slip the money back to her in the form of groceries, gas, clothing purchases, etc.) My rentals are run through a LLC with no family name, so there is no "obvious" connection to raise an eyebrow.

Also, something to remember: the IRS publishes rent amounts that are used in the calculations for DMI. So long as the rent she pays is close to the IRS allowance for a single person, like Lady says the trustee probably won't care who is getting the money.

The rent charged will show up in the means test and possibly may qualify her for a Chapter 7 bankruptcy. The question is how long she has to pay it before filing.

[Mike1944]

She has no assets. So, that is the easy part. I am an only child, so no help on that front.

I talked to her about it and she would like to be able to start paying some rent. I just wonder how many months we should go before having her file. If they want 6 months bank statements, shouldn't we try to wait 6 months? The housing allowance in our are is $1,541 for one person. It looks like that includes rent, phone etc.. Right now, it looks like she is about $900 less than this without rent. So, even a $300-$400 amount would not bring her close to the allowable amount, but definitely leave no disposable income.

[LadyInTheRed]

The rent charged will show up in the means test and possibly may qualify her for a Chapter 7 bankruptcy. The question is how long she has to pay it before filing.

The actual rent paid is not used on the means test. The means test uses the local standards, regardless of how much the debtor pays. So, the means test isn't the issue. It sounds like she will pass the means test. Schedule J is the issue because if she doesn't have to pay rent, the U.S. Trustee could object to a Chap 7 discharge based on totality of circumstances. Schedule J is supposed to look forward, not back like the means test does. So, it may not be an issue either.

I talked to her about it and she would like to be able to start paying some rent. I just wonder how many months we should go before having her file. If they want 6 months bank statements, shouldn't we try to wait 6 months? The housing allowance in our are is $1,541 for one person. It looks like that includes rent, phone etc.. Right now, it looks like she is about $900 less than this without rent. So, even a $300-$400 amount would not bring her close to the allowable amount, but definitely leave no disposable income.

Because Schedule J is the issue, she may not need to even pay one month of rent to you before she files. She really should talk to an attorney to decide whether she needs to delay filing.

Not every trustee wants 6 months of bank statements. Mine only wanted the statement in the month I filed. Attorneys may ask for 6 months of bank statements, but that doesn't mean they ever go to the trustee.