Have liquid assets - rentals are sinking us

[SinkingLL]

This question is really about how different creditors get paid off and what assets they have access to. We are in Florida.

If we didn't have rentals we would be fine.
We have less than $10k in credit card debt (mostly promotional deals)
We have about $30k in the bank + our personal property, a car worth $8k, and one with zero equity due to the loan that's on it.

Our problem is that we have $1.5M in mortgage debt and our tenant's financial problems have turned into our financial problems. We can no longer handle the negative cash flow and the house of cards is starting to come down.

If we file Chapter 7 to get rid of all the rentals, will we actually be left with money and our personal property or will the BK take that money to pay secured creditors as well? One interpretation of the BK proceeding implies that the secured creditors only get their security back and that's it. If that's the case, the BK Trustee would pay off our credit cards (which we would have paid anyway), but what happens to the other $20k, the personal property, and the car that had $8k in equity?

If liquid assets exceed unsecured liability, do we keep the difference or will the trustee be able to take that to give extra money to the secured creditors?

[keepmine]

While your mortgage holder will get there property back, you will be responsible for any deficiency balance and that is unsecured debt just like the credit cards.
Assets beyond what your state exempts can be seized by the trustee to pay unsecured creitors.
If you wish to keep those assets you'll either need to file a 13 or, spend 'em down prior to filing a Chapter 7 or convert them to exempt asets like, IRA's.
Most bk lawyers give free or lowcost initial consultations. Speak with a few and see what they suggest.

[despritfreya]

If you file a 7 the Trustee will gather all of your non exempt assets. He will then notify creditors that they need to file claims if they want to participate in a distribution. Some creditors will not file claims but most will.

The Trustee will not pay a secured creditor unless he liquidates the collateral. He will not liquidate the collateral if the liens attached to the collateral exceed its value. If the mortgage lenders file secured claims those claims will not share in a distribution. If the rentals have 2nd mortgages those lenders may (but it is unlikely) file deficiency (unsecured) claims if the rentals are foreclosed prior to any distribution by the Trustee. Again, this is very unlikely.

Distribution by the Trustee is in the following order:

Himself and his attorney
Priority creditors, if any (domestic support obligations, taxes etc.)
Unsecured creditors
The debtor if anything is left over if all claims are paid in full

One poster suggested a Chapter 13. You do not qualify for a 13 as you are over the secured debt limit. If you want to "reorganize" and keep all of your non-exempt assets you will be stuck in a Chapter 11.

Your next step is to meet with a qualified bk attny.

[SinkingLL]

Thanks. This was helpful. Let's take a physical personal property asset like a car or a couch. In a scenario such as ours where there is quite a bit of cash available to take for unsecured claims, will the trustee likely go to the effort to liquidate the car that has $8k in equity and then sort things out or will they wait to see what happens? In other words, at the end, if there's something left over will all of our personl proeprty have already been converted to cash, or would we likely just retain that personal property? Obviously the "stuff" is worth more to us than its cash value, so liquidation, regardless of whether we ended up with it's "thrift value" back in the form of cash would prove a very expensive loss. If the trustee takes a couch that cost us $1000 and it only nets $100 at auction and we end up with the $100 in our pocket instead of keeping the couch, that's not a good scenario. Thoughts on this?

If you file a 7 the Trustee will gather all of your non exempt assets. He will then notify creditors that they need to file claims if they want to participate in a distribution. Some creditors will not file claims but most will.

The Trustee will not pay a secured creditor unless he liquidates the collateral. He will not liquidate the collateral if the liens attached to the collateral exceed its value. If the mortgage lenders file secured claims those claims will not share in a distribution. If the rentals have 2nd mortgages those lenders may (but it is unlikely) file deficiency (unsecured) claims if the rentals are foreclosed prior to any distribution by the Trustee. Again, this is very unlikely.

Distribution by the Trustee is in the following order:

Himself and his attorney
Priority creditors, if any (domestic support obligations, taxes etc.)
Unsecured creditors
The debtor if anything is left over if all claims are paid in full

One poster suggested a Chapter 13. You do not qualify for a 13 as you are over the secured debt limit. If you want to "reorganize" and keep all of your non-exempt assets you will be stuck in a Chapter 11.

Your next step is to meet with a qualified bk attny.

[tobee43]

i don't know if i would file bankruptcy just yet ... i think i would either just let the bank foreclose on the properties...or attempt to work with those banks and see if they will take the properties back...doubt it in florida...

now...you'll need to check this..but i think in florida you don't have to pay the difference if you just give back the collateral ... i know in the state i had my property you did have to pay the difference, but i don't think in florida...i could be incorrect...

however, even if that were the case, and florida does make you responsible for the differece, you would need to plan carefully...let them foreclose, or start the procedure, stop paying them....then file bankruptcy. then even IF florida was a state that you did have to pay the difference on the deficient that would be discharged with the bankruptcy. that way the ONLY financial responsibility you would have is HOA, if they apply.

[despritfreya]

If I get what you are asking correct, am I to assume that you are just going to turn over cash to the Trustee? I usually advise my clients to live off the $$, keeping track of it so we can show that it was spent and did not go to a friend or relative, and then, when all of the cash is gone file bk. I would much rather my clients get the use of the cash then to just line the pocket of the Trustee.

Okay, now if you are going to turn over the cash and you think that the cash along with the liquidation of some non exempt items you do not care about, will pay all allowed claims you can ask the Trustee to hold off liquidating other assets until the "claims bar date" passes. This strategy will depend upon two things 1)the Trustee assigned to your case and 2) your attorney. If you are assigned a Trustee who is, shall I say, a jerk, you may have a tough time getting him to hold off. If your attorney is not persuasive enough, having dealt with this type of issue before, you may get stuck as well. I can tell you from experience, the strategy does work if you have the right Trustee. In the particular case I am thinking off my client has two pieces of real estate, each with sufficient equity to pay claims. We waited until the claims bar date passed and then sold only one of the properties. All "allowed" claims were paid in full and my client kept the other property.

Lastly, your Trustee is not likely to take the non-exempt household goods unless there is some real value like having a Chippendale chair. The Trustee does not want your old beat up patio furniture. He wants the Picasso painting you have hanging over the fireplace.

[tobee43]

If I get what you are asking correct, am I to assume that you are just going to turn over cash to the Trustee? I usually advise my clients to live off the $$, keeping track of it so we can show that it was spent and did not go to a friend or relative, and then, when all of the cash is gone file bk. I would much rather my clients get the use of the cash then to just line the pocket of the Trustee.

Okay, now if you are going to turn over the cash and you think that the cash along with the liquidation of some non exempt items you do not care about, will pay all allowed claims you can ask the Trustee to hold off liquidating other assets until the "claims bar date" passes. This strategy will depend upon two things 1)the Trustee assigned to your case and 2) your attorney. If you are assigned a Trustee who is, shall I say, a jerk, you may have a tough time getting him to hold off. If your attorney is not persuasive enough, having dealt with this type of issue before, you may get stuck as well. I can tell you from experience, the strategy does work if you have the right Trustee. In the particular case I am thinking off my client has two pieces of real estate, each with sufficient equity to pay claims. We waited until the claims bar date passed and then sold only one of the properties. All "allowed" claims were paid in full and my client kept the other property.

Lastly, your Trustee is not likely to take the non-exempt household goods unless there is some real value like having a Chippendale chair. The Trustee does not want your old beat up patio furniture. He wants the Picasso painting you have hanging over the fireplace.

but what would be the point??? if it's only the rental properties causing the financial problems...why not just dump them??? provided florida does not find the OP responsible for the deficient between the amount of sale of the property and the mortgage?

and, once again, even if they did...why not go all the way thru with the foreclosures prior to the filing so all cost and fees assoc. with the foreclosures would be included with the BK?

[SinkingLL]

You can get a deficiency judgment against you in Florida. This becomes non-secured debt which can attach to wages, etc. I can file BK today and get it over with, or I can wait to see what happens. Also, RIGHT NOW, I pass the means test and unless someone knows for sure, mortgage debt on rental properties is a grey area in the new law regarding whther or not it qualifies for means test exemption. I just lost my job, so within 3 months I will pass the means test if I am still unemployed. Once I get a new job, I will no longer pass the means test.

I am going to start negotiating with the banks first. If I can get ALL of the banks to take the properties and not chase me for the difference then that's the route I'll go, but that will depend on five different banks taking back 15 properties. If just one of them won't play ball then I'm still screwed.

I stopped paying the mortgages a couple months ago to get them to realize that I really was in trouble. Tried to talk to them while I was current but that was like talking to a brick wall. Now that I had to completely hose my credit to get them to listen, I'm going to call them and start talking with them and see what we can work out. I'll do just about anything with them if they will waive their right to a deficiency judgment in exchange for me being cooperative.

Since I had to hose my credit anyway, I've also stopped paying the SECOND mortgage on my own home in hopes of negotiating a discounted payoff with them. That would be awesome if they took 10-20 cents on the dollar to go away especially since Florida has unlimited homestead exemption. If the second mortgage on my house calls my bluff, I'll just bring it current before I run out of money.

but what would be the point??? if it's only the rental properties causing the financial problems...why not just dump them??? provided florida does not find the OP responsible for the deficient between the amount of sale of the property and the mortgage?

and, once again, even if they did...why not go all the way thru with the foreclosures prior to the filing so all cost and fees assoc. with the foreclosures would be included with the BK?

[despritfreya]

HOLD ON A MINUTE. YOU do not have to pass means testing as you are a business case!!!! You have 15 rentals owing 1.5 mil. Unless your "consumer" debt exceeds that amount you are a non consumer/business case and it does not matter how much or how little you earn.

[tobee43]

yes, i would make certain you speak with an atty...because really, by not paying you know they will begin the forclosure process...and then, you'd still be better off to wait.

it doesn't matter if it's rental or investment property....you can list it as secured on your bk...and if you still own the property at the time of the BK and have listed them as secured debt...the trustee would have the right to use them, sell them to pay your creditors...so the banks would be best off working with you.


and that was the point i was making making any and all fees or deficiency amounts do get discharged in the bk...rental property or not.

there are other factors other than the means test....they are called "expenses" and there is a way to work around it.

[tobee43]

HOLD ON A MINUTE. YOU do not have to pass means testing as you are a business case!!!! You have 15 rentals owing 1.5 mil. Unless your "consumer" debt exceeds that amount you are a non consumer/business case and it does not matter how much or how little you earn.

exactly....

there are other factors other than the means test....they are called "expenses" and there is a way to work around it.

[Monguls]

I was in a similar situation OP, but with my personal residence instead of rental properties. I didn't have as much cash as you, and I only had about $3000 equity in 2 cars. I also had a short window where I could pass the means test due to short-term reduced salary. Some earlier posters questioned whether Florida is a deficiency state. It definitely is. In Florida, mortgage lenders have up to five years after foreclosure to file a deficiency judgment for the balance of the loan. After they obtain the deficiency judgment, they have a long time in which they can attempt to collect (20 to 25 years, I think). Some attorneys in FL think lenders will not actually seek deficiency judgments, because many have not been doing so yet. I did not want to take that chance, so I filed Chapter 7 while I could pass the means test.

I'm not an attorney, but to me it would not make sense to allow secured creditor's to participate in a distribution if the security property is not liquidated by the trustee. Because, how could they really know what portion of the debt will be covered by the foreclosure sale?

Regarding the equity in your car, you could trade it in and finance a newer one to keep the equity under the allowable exemption. Then, you re-affirm the new car loan and keep the car post-bankruptcy. If you don't have a homestead, you will be entitled to an additional $4000 wild card exemption which you could use for some of your cash in the bank. You could then try to spend as much of the remainder of the cash as you can on necessities such as your attorney's fee, stocking up on food, getting everyone in your family up to date with doctor/ dentist visits, purchasing necessary clothing (as long as no one item is very expensive, the trustee probably won't go after it even if not fully covered by exemptions), making normal payments for your vehicles, rent, utilities, etc. Just make sure you save receipts or use a debit card, so you can prove how you spent the money if questioned by the trustee. Regarding other personal property, the trustee probably won't bother to go after anything you own unless it is worth his while even if exemptions don't fully cover it. The only way it is worth his while would be if you have some really expensive items ($1000's) that he could cherry pick and sell.

I suggest that you start interviewing attorneys in your area and getting their opinions on your situation. You can get a lot of questions answered in a few free consultations with various attorneys and find out where you really stand and also when it makes the most sense to file in your situation. Try to find some attorneys that understand both bankruptcy and foreclosure law, so they can give you advice about both processes.