Complicated situation regarding property and Ch. 7

[mbmullen]

Let me start by thanking you all for being here. I found a forum like this when we were short selling our house and it was a wealth of information and support!

Our situation is this: We are planning to file Chapter 7 in a couple of weeks. My husband owns two pieces of property with a partner. The first is a residential lot. My husband and his partner are both on the title but the note/mortgage are only in his partner's name. We have made every payment for this lot and although we cannot afford it, we do not want to damage his partner's credit by defaulting.

The second is a rental property and they are both on title, note, and mortgage. They have shared all of the expenses for that one but it is also costing us money that we cannot afford.

Both properties are 30 - 50% upside down so there is no equity.

We would love to be rid of them, but again, really don't want to ruin his credit or stick him with the bill.

Any advice? Our attorney thought at first that we could surrender them with no negative consequence to him, but now she says that may not be correct.

We are in South Carolina, by the way.

Thank you for your opinions!

[Dst1]

I don't see how you can avoid negative consequences for the partner, although I am not an expert on SC law. If you don't pay your share the creditor is going to go after him; it's extremely rare to see a contract that prevents that from happening.

[mbmullen]

Thanks Dst1. That's what I was afraid of. Is there a chance the trustee will insist that we surrender them or not approve of our continuing to pay for the lot even though we're not on the note? Do we need to name the partner as a creditor?

[Dst1]

Thanks Dst1. That's what I was afraid of. Is there a chance the trustee will insist that we surrender them or not approve of our continuing to pay for the lot even though we're not on the note? Do we need to name the partner as a creditor?

You might. As your title suggests it's complicated...which is why you have an attorney. A great deal is going to depend on the specific legal agreements (if any) you have with the partner and how they are written.

I don't see how the trustee can continue to let you pay on the note that's not even in your name.

[mbmullen]

We don't have anything written with him. He has plenty of money and the $900/mth is killing us, but he's my husband's best friend and we just don't know what to do.

Thanks again

[Dst1]

We don't have anything written with him. He has plenty of money and the $900/mth is killing us, but he's my husband's best friend and we just don't know what to do.

Thanks again

Well, I hope that one thing you have done is talked with the partner about your plans. For the sake of the friendship, don't blindside him with a BK filing.

[mbmullen]

Oh, heavens no! He definitely knows the situation. I just read in another thread that the bankruptcy judge may not allow us to reaffirm real estate debts. If we are forced to surrender our part of them could we continue to pay him for them afterwards?

[mbmullen]

Here's another question, while we're at it. We are collecting $1100/mth in rent. The property is still costing a few hundred dollars beyond that. Is it possible the trustee would take over the rent collection and not make the mortgage payment? There's no way to not name that debt in the filing, is there? I'm not trying to break the law, we just don't want to lose control of that situation and ruin him financially.

[Dst1]

Oh, heavens no! He definitely knows the situation. I just read in another thread that the bankruptcy judge may not allow us to reaffirm real estate debts. If we are forced to surrender our part of them could we continue to pay him for them afterwards?

Yes. Once the BK is discharged you can do what ever you would like. I would not do anything, even say anything to him, during the BK however... just to be safe.

[Dst1]

Here's another question, while we're at it. We are collecting $1100/mth in rent. The property is still costing a few hundred dollars beyond that. Is it possible the trustee would take over the rent collection? There's no way to not name that debt in the filing, is there?

Yes, the trustee would most likely take over the rent collection.

You didn't say which property this one is. The one that worries me the most TBH is the one where your name is on the title but not on the loan. I really wonder how the trustee is going to deal with that...I have no expertise. But it strikes me that if you have been sending money to a loan that was not in your name the trustee could claw back all payments to that loan for the last year as insider transactions. Have you bothered to ask your lawyer about that angle?

[mbmullen]

My husband has met with two atty's over the past couple of months and I don't know exactly what he told them. We both met with an atty this week who we liked alot and we told her about the whole situation. She didn't say anything about that angle. Maybe we should talk to another atty? I have to admit we probably overwhelmed her with our whole complicated situation!

As for the rental, if the trustee collects rent will he make the payment? What if the tenant moves out? I'm sorry - too many questions... We're just in such a mess.

[frogger]

Friendship is friendship, but family must come first. See an attorney or three, but when it all comes down to the end, you must take care of you and yours before friends.

I don't mean for this to sound harsh, but that's just the way it is. It's a business decision, and you've just got to do what is best for your family.

Good luck.