Attorney advised pre-paying 6 months of Airbnbs before filing - SECOND OPINION WANTED

[nozar]

I have non-exempt cash and have been looking for legal ways to protect or spend it before filing.

I retained a well-reviewed (on Avvo) law office for my Ch 7 case, and asked again my attorney specifically about pre-paying rent, which they suggested in the first place, and I had some questions about in this other old thread.

Attorney said it's perfectly fine to pre-book 3, or even 6 months of Airbnbs in SF Bay Area, before filing. That will reduce my financial assets by $20k, and we're not even talking about pre-buying groceries (it's Covid times after all, reasonable to prep) or a car.

Will this really fly?! It's clearly a dead-easy way to not have to turn over a lot of cash.

Me: $3500/mo for rent is a lot of money, won't that raise flags? How far does that go? Can I put myself up in a penthouse?
Atty: Those are the prices in the Bay Area. If your pattern is that you've lived in a 2-bedroom apartment elsewhere for $1000/mo but now you're in the Bay Area, it's perfectly reasonable to spend $4k/mo. The BK process takes 3 months, your accounts can be frozen, so you're setting yourself up.

Me: OK 3 months for the duration of the BK process, how about 6 then?
Atty: 6 is fine too, these are uncertain times, you need to make sure you have the same place booked. You don't know if you'll be able to get a job etc.

Me: OK, but usually people pay rent monthly.
Atty: Yeah, that's rent, you're booking Airbnbs.

I mean, I want to trust my attorney and they seem knowledgeable, but this is too good to be true, and contrary to what I've read here and elsewhere.

What gives? Major differences between divisions? Attorney knowing how the trustee (judge) operate?

[justbroke]

This sounds bad. I would get another opinion. This looks like more to "hinder, delay or defraud" unless you actually only live in an AirBnB right now.

I would seek 4-5 more free consultations on this point. The suggestions seems to skirt around the edges and gray areas of so-called bankruptcy pre-planning. It can be a fine line.

(If it's despritfreya that gave the advice on Avvo, then ignore what I wrote. LOL. Besides, they probably do things differently over there on the West coast.)

[flashoflight]

I wonder who is this lawyer. Is it CM? I like her a lot but she is very aggressive and pushes the envelope.

I agree with JB because it sounds like you are hindering and delaying. Unless there is only one trustee in San Jose for 7s, you are gambling because you can't predict the outcome as good as a debtor who is guaranteed to have a specific trustee.

[despritfreya]

I suggest you go back to the attorney and ask. . .

1. Do we list the unexpired Airbnb leases on Schedule G?

2. What happens to the unused rent money when the Trustee rejects the unexpired Airbnb leases under 11 USC 365?

The answers to these two specific questions will tell you much about the attny. In the mean time, I agree that you should get other opinions from other attnys.

As to Avvo - while an ok resource, it is not necessarily a good place to determine if the attny is well qualified. I have seen "high ratings" for attnys who ended up disbarred. Local referrals are better and you can check to see if an attorney has had any disciplinary problems by contacting the State Bar Association.

Finding an attny is no different from finding a doctor. You check the licensing boards, Google to see if you can find lawsuits for malpractice, and you always get more than one, two or even three opinions. The reality however, is that you will not know if you made the right choice until the process unfolds over the time it takes to get through the bk system.

Des.

[nozar]

This sounds bad. I would get another opinion. This looks like more to "hinder, delay or defraud" unless you actually only live in an AirBnB right now.

I do live in an Airbnb. Does that change things? In what ways?

I would seek 4-5 more free consultations on this point. The suggestions seems to skirt around the edges and gray areas of so-called bankruptcy pre-planning. It can be a fine line.

(If it's despritfreya that gave the advice on Avvo, then ignore what I wrote. LOL. Besides, they probably do things differently over there on the West coast.)

I think I lack the experience on this forum to get the inside joke about Des

The advice I got wasn't on Avvo, it was over the phone after I retained their firm for two grand. flashoflight, It wasn't CM - I found the law firm on Avvo, emailed their main partner, the one whose name the firm bears, and was called back by this different attorney. She answered all the questions I had then, to the point, and the answers were the best of the 5 BK attorneys I had interviewed hitherto.

However, on the second call with her, I got this too-good-to-be-true advice about pre-booking Airbns, and also that I should deposit $10k in a Roth IRA. I asked, why not $12k, since $12k is the max? She said "$12k is fine too". I'm a little surprised by that. Why not advice $12k from the get go?

despritfreya: thanks for the sobering advice. I'll do that next week.

But I wonder what gives attorneys this confidence to push the envelope, and assure me it'll be totally reasonable to move $12k in a RothIRA, spend $20k on rent etc.

[justbroke]

I do live in an Airbnb. Does that change things? In what ways?

No, see Des' response.

I think I lack the experience on this forum to get the inside joke about Des

Des is a practicing attorney on the West coast. Des brings practical experience and asks all the right questions.

You ask why some attorney would push up against the finer lines of the law than others? It's either arrogance or they are very skilled in the art of argument/negotiation. The kicker is that you could put money in an IRA and there have been many cases that are okay with saving for retirement just before filing. Some people, in Florida, even put all their money into their homestead since it is 100% protected by the unlimited homestead exemption here... right before filing. Whether a Chapter 7 Trustee will challenge this last minute "pre-bankruptcy" planning techniques is too fact-specific. Perhaps really skills attorneys (you know... the arrogant or just truly gifted) know all the other Chapter 7 Panel Trustees and they know how much they can push. Some of these attorneys are Chapter 7 Panel Trustees as well, so they know the gamesmanship of the others.

But prepaying rent... seems like any easy grab for a Trustee.

[despritfreya]

But prepaying rent... seems like any easy grab for a Trustee.

Wonder if the California attny is thinking about this case and planning on attempting to exempt the pre-paid rents: In re Sain, 584 B.R. 325 (Bankr. S.D. Cal. 2018). Don' know if the holding applies and since I am not a California attny I have no opinion one way or the other.

Des.

[justbroke]

despritfreya yeah, that case In re Sain , 584 B.R. 325 (Bankr. S.D. Cal. 2018) is complex, if you ask me. That case was filed in 2014 and that opinion was made in 2018. That's a long time, but significant money was at stake.

Case URL: https://casetext.com/case/in-re-sain-5142011

[nozar]

justbroke: the link in your post appears "blocked", but I found that case text at https://casetext.com/case/in-re-sain-5142011.

[nozar]

I suggest you go back to the attorney and ask. . .

1. Do we list the unexpired Airbnb leases on Schedule G?

2. What happens to the unused rent money when the Trustee rejects the unexpired Airbnb leases under 11 USC 365?

I asked these two questions via email, plus another one (price range). The attorney did not answer them, and only answered the price range one, saying I could book at either end.

[justbroke]

Interesting that they avoided the question on the Unexpired Leases (Schedule G) disclosure and what the Trustee could do by rejecting the AirBnB lease. I think despritfreya makes a good point on those two points, especially when I just found this;

Conversely, if the lease is rejected, the debtor in possession or trustee would be able to walk away and otherwise be relieved from future performance obligations under the lease. This includes having to surrender the real property almost immediately. Under the Bankruptcy Code, the rejection would be treated as if a breach of the lease had occurred immediately before the Petition Date, regardless of when the actual rejection is made. The [lessor] would have a claim for damages which would be administered as part of the bankruptcy process, including being subject to payment of pennies on the dollar and to the debtor’s discharge should there be one.
.
.
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While the bankruptcy power to assume or reject unexpired real property leases is not unfettered, the power does serve the central goals of bankruptcy law, which is to provide a debtor a financial fresh start and to maximize the value of a bankruptcy estate for the benefit of creditors. Should that include continuing with an unexpired real property lease through assumption or disposing of the lease through rejection would be up to the debtor in possession or trustee.

Source: Riverside County Bar Association Magazine June, 2016 ("To Assume or Reject: Unexpired Real Property Leases in Bankruptcy", page 6)

http://www.riversidecountybar.com/Do...-June-2016.pdf

(emphasis added is mine)

In other words, the Trustee could reject the lease and then the creditor (AirBnb) would be subjugated to being an unsecured creditor and may receive only a portion of the proceeds from the unsecured pool. If you have priority debt, the priority creditor would get paid before the unsecured creditors.

I think that the heart of the question is... in the end, what does this do for you if the lease is rejected? If you don't care what happens to the money, and are then without a lease, then it could be a good "what-if" strategy. I can't answer that question.

[nozar]

What if instead of Airbnb, I sign a 1-year lease agreement with a regular apartment rental company (that accepts pre-payment), or with a long-term stay service like Sonder or Zeus Living? Would that make a my case easier?

[despritfreya]

What if instead of Airbnb, I sign a 1-year lease agreement with a regular apartment rental company (that accepts pre-payment), or with a long-term stay service like Sonder or Zeus Living? Would that make a my case easier?

I believe it is the same situation. The unexpired lease must be listed on G and the Trustee can reject it.

You need to find an attorney who can specifically answer the two questions I posed back in May.

1. Do we list the unexpired lease on Schedule G?

2. What happens to the unused rent money when the Trustee rejects the unexpired lease under 11 USC 365?

Add to that the question of whether or not there is an exemption for pre-paid rents and, if so, how much.

Your original post was exactly 5 months ago. Have you consulted with additional attorneys? If so, what information did they provide? Have you spent down the money over the past months? Maybe, by the passage of time, the issue is a non-issue???

Des.

[justbroke]

It would be nice, for me, to at least read about what the local attorney thought on those two unanswered questions. I'm not qualified or licensed to hazard even a guess. Somethings just have to be answered by an attorney practicing within the jurisdiction of the questioner. I have no practical experience and, even if I did, my experience would be for Florida and not California.

[nozar]

Your original post was exactly 5 months ago. Have you consulted with additional attorneys? If so, what information did they provide? Have you spent down the money over the past months? Maybe, by the passage of time, the issue is a non-issue???
Des.

My attorney neglected to answer those two questions. In the meantime I've been living frugally, so the extra money is still an issue.
When creditors called me, I told them to call my attorney, and the calls stopped immediately. I'm in a strange (not bad) limbo now, where I'm not earning money and not paying back debts either. Could I keep doing that and spend the money I have left over the next 6 months, then file?

I haven't talked to other attorneys for two reasons, 1) I've already paid my attorney and they seem to have very good relationships with the trustees, and 2) initially when I interviewed 5 CA bankruptcy attorneys, they gave me all sorts of contradictory advice. One even said I could buy a house, even though I clearly remember reading somewhere reputable that homes are exempt only if they were purchased 2 or more years before filing.

My impression so far is that a LOT is up to the trustee, bankruptcy rules can be interpreted to quite some degree, and the outcome ultimately boils down to the relationship the attorney has with the trustee. Mine repeatedly told me (and even wrote so in an email with their team CCed) that I can prepay 6 months of rent at $4k/mo, for example, because it's a living expense. When I pushed and said that by this token, any bankruptcy filter could put themselves up in a penthouse as part of BK pre-planning, my attorney said that would actually be OK.

So let's say I talk to other CA BK attorneys, and they tell me prepaying the rent is not OK. What then?