Investment property and presumption of abuse

[LMinNC]

Hi I am new here and trying to learn as much as I can as quickly as I can (albeit a little late in the game it seems...)

We have investment property in MA which is underwater. We owe 511K in primary and 60K in a HELOC. We had an offer for a sale at 510K which the banks would not accept. We have about 25K in cc debt.

We are over our states median income but when we consulted multiple attorneys they all said with the mortgage payment to the investment property we would have no trouble passing the means test. Now we have presumption of abuse and a request for a hearing. I have a call scheduled with my atty tonight but wanted to see what you all thought and if you have advice etc....

Thanks in advance!

[sworks2]

You need to find a new attorney because the only way you have a 'presumption of abuse' is because you current attorney has that property listed has a personal debt and not business.

Unless you owe more than 570K in your current mortgage and credit cards, is that the case?

I can't imagine the trustee is going to let you have a primary mortgage and a payment on this investment property allowed in your means test.

[LMinNC]

No - current mortgage is less then 300K, car less then 2K and cc debt around 30K. Can you explain a little more about classifying the investment property as business debt? We don't pass the means test without those expenses.

When I talked to him tonight he said that we have no problem passing the means test but that the Bankruptcy Administrator is arguing that my husband received an annual bonus last year of 10K and that should be annualized when looking at what we could afford to pay. Even though we didn't receive it within the 6mths prior.

It looks like we don't have a choice but to fight this out as a ch 7. We have paid our attys in full already, they were the only ones in our area with an A+ BBB rating so I thought I was getting the best - they are a bit of a mill though. We can't afford Ch 13 because they would want to put us in a 100% debt repayment plan and there is no way we could afford that.

Does/Has anyone fought a motion to dismiss and won? I am in NC Eastern district...

Thanks all!

LM

[sworks2]

If your business debt is more than 51% of your total debt then you cannot be forced into a chapter 13 by threat of 707(b).
If you have an investment property and it is 500K and your dealing with the trustee about questions of the means test then your attorney doesn't know what he is doing.

It is very important when filing bk with business debts you find an attorney who does business bk's, not to many do.

[frogger]

If you have the presumption of abuse, then your attorney did not do a good job on the paperwork.

And fyi, the BBB rating is a total crock of b.s. Don't ever use it to make a decision.

[HHM]

Before we lambaste the attorney here, there could be any number of reasons a presumption of abuse was filed related, and unrelated to the investment property. Heck, the mere fact that the debtor is over median (even if they pass Part II means test) is enough to get an objection.

However, it does sound like this should have been filed as a non-consumer case, but that ONLY works if this property was originally purchased as such (was it?)

[LMinNC]

However, it does sound like this should have been filed as a non-consumer case, but that ONLY works if this property was originally purchased as such (was it?)

Not entirely - it is a 3-Family house and we lived in one floor for several years before moving to NC. Does that change the situation?

The attorney mentioned that the BA is looking at the "Totality of Circumstances" which I think is why he is arguing with the fact that my husband got a bonus, and if we didn't contribute to his 401K we would have some money to pay creditors. I am still waiting to see a copy of the motion though.

[newbie2]

Not entirely - it is a 3-Family house and we lived in one floor for several years before moving to NC. Does that change the situation?

The attorney mentioned that the BA is looking at the "Totality of Circumstances" which I think is why he is arguing with the fact that my husband got a bonus, and if we didn't contribute to his 401K we would have some money to pay creditors. I am still waiting to see a copy of the motion though.

The 3 family home could have originally been purchased as an owner occupied mortgage. If that is the way that your mortgage & note were drawn up, and not as an investment loan, then this could be a problem as far as claiming it as non-consumer. (There were several mortgage products available in previous years for up to 4 family units in which one was occupied by the owner and still have it be a primary residence mortgage.) You would have to get out your original documents that you signed (mortgage and note) to see if it is indeed an owner occupied loan or a true investment loan.

I do think the Totality of the Circumstances is what is coming back to haunt you now. The bonus, the 401K contribution and quite possibly the payments on 2nd home combined add up to quite a bit of money that the trustee is thinking could be used to pay unsecured creditors.

Good luck to you, and please keep us updated on how all of this plays out for you.

[white98m3]

Any update on this

Has there been any update to this?
We just filed a similar CH 7 non consumer case in MA
We purchased a 2 family that was used as greater than 50% investment for a couple years while we also lived in it, we used the equity in the house to buy another investment property which we ended up selling at a huge loss.
Our attorney firmly beleives that this is a non consumer case. So I would really like to hear what happened with yours.

[LMinNC]

Hi all - thanks for all the input - I just wanted to circle back and let you all know that the bankruptcy administrator has WITHDRAWN his Motion to Dismiss! Horray! I am super cautious after all the stumbling blocks we have had along the way but I am hoping that this means DISCHARGE will be the next notice I receive!

My Atty says this should be all done - anyone think of any reason I shouldn't celebrate yet? We are a no asset case....

thanks again!

[white98m3]

Keep us posted

I have our 341 meeting on Tuesday
I really want to hear how yours works out

[LMinNC]

Horray we got our discharge and our fresh start! good bye old moneypit investment property. FWIW we had a shortsale (cash offer) and the banks wouldn't agree (we had two mortgages) so that drove us to bankruptcy. I haven't posted much but have really appreciated being able to read all the other stories and questions and not feel so alone. Good luck to everyone!

[white98m3]

So Glad

That it worked out for you
We are in the exact same boat
We were already notified of "no asset distribution" in our non consumer case
So now we are just waiting until October 17! I will be so happy once this burden is lifted.

[frogger]

Congratulations!