High income with investment properties

[airahcaz]

If one has significant income, that usually precludes them from qualifying for CH7; however, what if one has a primary home as well as investment homes, that are all under water, and furthermore, the total mortgage payments outweigh the rentals received.

Along with CC debt, would it be possible to qualify for 7, or does the significant income automatically make one ineligible? Tried the Means test and it is quite confusing and not definitive - thanks

[scorpion35]

If one has significant income, that usually precludes them from qualifying for CH7; however, what if one has a primary home as well as investment homes, that are all under water, and furthermore, the total mortgage payments outweigh the rentals received.

Along with CC debt, would it be possible to qualify for 7, or does the significant income automatically make one ineligible? Tried the Means test and it is quite confusing and not definitive - thanks

if your income is higher than your state's/county medium income u can still qualify for a chapter 7 if u pass the 2nd part of the means test
your income - your allowed expenses for your family size = chapter 7 or 13

[frogger]

It doesn't matter how much income you have if you don't have to pass the means test.

[justbroke]

You should be thinking about a non-consumer filing, such as mine. Those investment properties and other business debt will need to be the majority of your debt. "Majority" is a simple majority, so as little as 51% of your total debt should be business debt. If you have multiple investment properties and can show that they were purchased as investment properties, have filed taxes each year where you treated them as such (showing rents and royalties), and your primary residence doesn't exceed the price of all the investment properties, you should be good to go!

The means test is not applicable to non-consumer filers. However, you don't want to have too much disposable monthly income (DMI) left over each month, based on Schedule I/J.

[airahcaz]

You should be thinking about a non-consumer filing, such as mine. Those investment properties and other business debt will need to be the majority of your debt. "Majority" is a simple majority, so as little as 51% of your total debt should be business debt. If you have multiple investment properties and can show that they were purchased as investment properties, have filed taxes each year where you treated them as such (showing rents and royalties), and your primary residence doesn't exceed the price of all the investment properties, you should be good to go!

The means test is not applicable to non-consumer filers. However, you don't want to have too much disposable monthly income (DMI) left over each month, based on Schedule I/J.

very interesting, I need to research non-consumer', does a regular CH7 bk attorney do these? what else is involved other than the way you file as 'non-consumer'?

[HHM]

A regular, "run of the mill" Chapter 7 attorney probably wont handle these (I am always shocked how many BK attorneys don't even know about non-consumer BK-7 options), you will need a higher-end firm and expect to pay accordingly. Generally, non-consumer chapter 7 cases with high income filers invariably have asset issues. There are almost always non-exempt assets and so you need a good attorney that can aid you in pre bankruptcy planning. So, from an income side, assuming you qualify for non-consumer BK-7, income is not the issue, but higher income filers usually have the toys and financial investments that goes along with a higher income that may not be protected in BK.

[justbroke]

very interesting, I need to research non-consumer', does a regular CH7 bk attorney do these? what else is involved other than the way you file as 'non-consumer'?

As HHM points out, no! Quite a resounding "no", as a matter of fact. Many Chapter 7 attorneys will see an income over $100K and just say "no" before you even tell them it's mostly non-consumer debt!

As HHM also points out, expect to pay more for an attorney, since you will likely face litigation with the United States Trustee (UST). It can be done. It is done everyday. If your circumstances (income less expenses) warrants a Chapter 7 discharge, don't just take the first attorney's rejection. You will need to look (shop) around.

[airahcaz]

how does one calculate if they have significant non consumer debt versus credit card debt to qualify? as-in, what if cc debt is also significant?

[HHM]

Consumer debt = used for personal or household use (e.g. primary residence mortgage, car loans for non-business vehicles, CC debt used for any personal or household type items-groceries, new refrigerator, gas in car etc).
Non-Consumer Debt = Mortgages on investment properties, debt related to the upkeep of those property, business lines of credit (actually used for business), income taxes, etc

Your Non-consumer debt must be MORE than your consumer debt to bypass the means test.

[airahcaz]

Consumer debt = used for personal or household use (e.g. primary residence mortgage, car loans for non-business vehicles, CC debt used for any personal or household type items-groceries, no refrigerator, gas in car etc).
Non-Consumer Debt = Mortgages on investment properties, debt related to the upkeep of those property, business lines of credit (actually used for business), income taxes, etc

Your Non-consumer debt must be MORE than your consumer debt to bypass the means test.

Assuming 2 other homes of equal value that have negative equity, there is more non consumer indebtedness than on a primary home of equal value to one of the other homes, so the answer is yes.

[justbroke]

Then you should be filing a non-consumer Chapter 7 case. That is, unless you're trying to keep a property or strip a lien on your primary residence. After having been in a Chapter 13 and trying to save investment property, I will say that it's not worth it and that it's a waste of time (and money)!

[airahcaz]

Then you should be filing a non-consumer Chapter 7 case. That is, unless you're trying to keep a property or strip a lien on your primary residence. After having been in a Chapter 13 and trying to save investment property, I will say that it's not worth it and that it's a waste of time (and money)!

I don't care to keep any

[jst4f]

We are in a similar situation, high income and multiple investment properties. We looked at Chapter 13 as a way out and concluded that it would take 10 or more years to pay it all off, if ever. The attorney we subsequently contacted agreed completely and pointed out the advantages of the non-consumer debt Chapter 15. While our income, W2 type income, is high it has no bearing on our filing. Just in case we are challenged by the trustee, the attorney did perform a cash flow calculation. Most of the rental properties are way upside down and negative cash flow so without large lien adjustments post BK we will let them go whether we are current with the mortgage or not. A few are upside down but have positive cash flow, so we are hoping to keep them post BK with or without a lien adjustment. While you can not strip a lien or cram a loan in Chapter 7, you can try to negotiate with the lenders post BK if we stay current during the BK process. We will not re-affirm any of these loans. Time will tell. If the trustee keeps the rent then we will probably lose them as well.