Schedule J (current expenses) question...

[gman]

I own two rental properties. Neither has a renter right now - and they total around $3,500 in negative cash flow.

Here are my questions on the Schedule J.

1. If I am SURRENDERING the homes - can I put down the $3,500 towards expenses?

2. If I am NOT SURRENDERING the homes - can I put down the $3,500 towards expenses?

As crazy as this sounds - the $3,500 will make or break my ability to file a Chapter 7.

I see no big value in a Chapter 13 as I no longer have meaningful assets to protect.

Any ideas?

[laurannm]

If you are surrendering the home than I do not believe you can use the $3500 on your Schedule J.

If you are keeping the homes, then yes you can use the expense on your schedule J.

The only thing I am not sure of is if the fact that they are rental homes and not your primary residence, if that will prevent you being able to use them on your schedule ( even if you decide to keep them).

[gman]

OK. So if I SURRENDER them - I cannot put the money on the SCHEDULE J...


But if I KEEP them - does anyone know for certain if I can put the expenses on my SCHEDULE J? Remember - these are RENTAL PROPERTIES.

Thanks to all who chime in...

[happy_ira]

If you do not surrender your homes, I believe you claim $3500 on your form 22A. Aside, how are you going to pay for it in the real world if negative?

[gman]

We may decide to sell them AFTER the BK or RENT them.

Right now (CURRENTLY for SCHEDULE J purposes) they have no income.

Will this matter?

[Cali]

I didn't think you could use rental properties if you aren't living in them as an expense.

[justbroke]

I own two rental properties. Neither has a renter right now - and they total around $3,500 in negative cash flow.

My general response is that Rental Income is business income. A business must have a positive cash flow for any Trustee to allow it.

Having wrote that, we assume that all business income and expenses are a wash, so they technically do not exist!

1. If I am SURRENDERING the homes - can I put down the $3,500 towards expenses?

Towards what expenses?

2. If I am NOT SURRENDERING the homes - can I put down the $3,500 towards expenses?

I guess your'e asking if this is an expense you can claim on Schedule J. You can only claim the expense, insofar as you claim the Income generated from the property. This should even out and have a net income of MORE THAN $0.00 (e.g. positive cash flow).

I have a rental myself, but I'm in a Chapter 13. I'm keeping the property. I was told several times that it has to be positive, or I'll have to make up the difference out of my "allowed expenses". But, that's a Chapter 13...

But back to the basics. For the Trustee, any business expenses must be offset 100% by business income. This is a red flag area for all Trustees.

Remember, the Schedule J (especially in a Chapter 7) is FORWARD LOOKING.

[gman]

JUSTBROKE:

I think you answered my question. I will NOT be able to claim a negative $3,500 of expenses on my Schedule J for my Chapter 7 filing.

I see you are in a Chapter 13. I am interested in understanding what benefits you saw in a Chapter 13. The only ones I see are ASSET protection - and since I have no equity and have exhausted all other assets trying to stay afloat - I have nothing of substance to protect.

I find that the IRS-derived budget for expenses in a Chapter 13 to be unreasonable - and with inflation run rampant - can see nothing but problems in trying to live under a Chapter 13. What happens when gas prices go up even more? What happens when utilities, food, clothing all start to rise? How does one make ends meet if all "disposable income" goes to the trustee?

Even worse - if one makes more money in the future - all of it gets soaked up by the trustee. If one makes less income - then the plan falls apart and money has gone to the trustee for no reason.

Maybe I am missing the big picture - but if one has no assets to protect - then what is the benefit of a Chapter 13 given the (in my case) 5 year payout period?

Thoughts?!?!?

[justbroke]

I see you are in a Chapter 13. I am interested in understanding what benefits you saw in a Chapter 13. The only ones I see are ASSET protection - and since I have no equity and have exhausted all other assets trying to stay afloat - I have nothing of substance to protect.

I filed Chapter 13 to save my property! I had arrerages on the Rental Property (renters haven't really paid in 6 months, and now will go another 2 months without paying). I also had 2 years of property taxes on that property due. So, the Chapter 13 is the only way to save the investment (rental) property. (And I have equity in the property I didn't want to lose.)

I find that the IRS-derived budget for expenses in a Chapter 13 to be unreasonable - and with inflation run rampant - can see nothing but problems in trying to live under a Chapter 13. What happens when gas prices go up even more? What happens when utilities, food, clothing all start to rise? How does one make ends meet if all "disposable income" goes to the trustee?

Doesn't mean you can't challenge the amounts or use the other area of the B22C form to claim additional expense. i did just that. I claimed that the number used by the IRS for housing didn't match HUD's number for housing, and that one should trust HUD more on housing! No complaints from the trustee. That gave me about $400 more for utilities and other non-rent costs!!!

You have to realize that "Disposable Income" is your Gross Income less allowed expenses. So, you should have enough to eat, live, buy clothes, have a cell phone, cable, internet, etc, etc, etc. No problems. It's surprising what Disposable Income really equates to! It's what's left after you pay for your cars, house, food, medical insurance, education, etc. etc.

I do agree, that it's not enough to go out every week and spend $100's of dollars on... entertainment. That's not what it's meant to do.

Even worse - if one makes more money in the future - all of it gets soaked up by the trustee. If one makes less income - then the plan falls apart and money has gone to the trustee for no reason.

First, if you make more money, then it won't get soaked up if you can prove offsetting expenses! Besides, Trustees don't go after "cost of living" increases in income. Only that which is probably over 5%. Otherwise, you could easily argue inflation and cost-of-living and not have to increase the payment.

Secondly, if you make less income, you UPDATE YOUR PLAN!!!

Maybe I am missing the big picture - but if one has no assets to protect - then what is the benefit of a Chapter 13 given the (in my case) 5 year payout period?

Thoughts?!?!?

Chapter 13 isn't a CHOICE for everyone who needs to declare Bankruptcy. The new code was designed to move more people away from the Chapter 7 and into the Chapter 13. Chapter 13 pays back your creditors proportionate with your income and equity.

You may not qualify for a Chapter 7, because of income (you fail the Means Test). However, you may have $100K of unsecured credit out there. They will come for you and start to garnish your wages and get judgments and try to find any other property you have. Chapter 13 gives you 3-5 years to pay back some portion (or all) of that to the unsecured Creditors.

Let's say you did owe creditors $100K. Let's say that your Chapter 13 plan pays unsecured creditors $3K a month (your disposable income). You'd be done in less than 3 years. The kicker is this. You don't have to pay interest either and the creditors are essentially prohibited from bothering you during the Plan period.

Otherwise, you're at the mercy of the courts (non-bankruptcy courts).

Compare the Plan with the mercy of the non-bankruptcy courts. Say a 25% garnishment was awarded on a judgment for just one of your creditors For the period it takes to pay back that one creditor, there goes $1 for every $4 you make. Then, after you pay back that creditor with interest and attorney fees (something unsecureds are limited to pre-petition fees only in a Chapter 13), the next creditor gets you for 25% for xxx years.

Chapter 13s are not easy. Many fail to complete their Plan.

[outofluck07]

Rental Property - Surrender = Business debt?

If the majority of your debt is due to a rental property gone bad, and your unsecured debt is the amount of your mortgage if you surrender the property, then does surrendering a property create the business debt that will qualify for Ch. 7? I was told that you can only keep rental property that creates a positive cash flow - so keeping them is not always up to you to decide. I'm giving mine up, and want to know if it will help me qualify for Ch. 7.