Does reaffirming rental property mortgage stop rental income from being in bk estate?

[bk2011]

Hello,
We filed Chapter 7 BK on 2/15/11, and had our 341 meeting on 4/7/11, discharge is scheduled for 6/6/11. We have a rental property that we want to keep. Since we filed 2/15 the trustee is collecting the rent as part of our bk estate, March and April specifically.

We want to keep this rental property and are about to reaffirm the mortgage with the lender.

When does the Trustee stop taking the rental income as part of the bk estate, is it after we reaffirm the mortgage?

Any advice or answers are appreciated. I am in Missouri if that makes a difference.
Thanks in advance!!
JD

[HHM]

Let's back up, why are you reaffirming a mortgage on a rental property? You don't have too to keep the property. It's almost always a colossal mistake to reaffirm any mortgage. Has your lawyer signed off on the reaffirmation. Realize, you will probably need to go before the judge to get the reaffirmation approved, and most judges don't approve them.

[bk2011]

Let's back up, why are you reaffirming a mortgage on a rental property? You don't have too to keep the property. It almost always a colossal mistake to reaffirm any mortgage. Has your lawyer signed off on the reaffirmation. Realize, you will probably need to go before the judge to get the reaffirmation approved, and most judges don't approve them.

I didn't realize that. Why wouldn't a judge reaffirm the mortgage? We have an attorney and he doesn't give us solid answers, he never mentioned that a judge would have to approve the reaffirmation.

[HHM]

Unless the attorney signs off on the reaffirmation (most wont), and even then, that is no guarantee. A finding needs to be made that reaffirming the debt won't create a hardship and is necessary. It is sort of hard to think of any scenario where reaffirming a mortgage on a rental property meets that criteria.

Is the rental property negative or positive cash flow (e.g. does the rent cover ALL expenses)
Is the value of the property negative or positive. My guess is the value is negative (upside down) other wise the trustee would be selling it.

If the property is either negative cash flow or negative equity position, I don't see anyone approving a reaffirmation.

[disconapper]

LOL, I have nothing to contribute really. I just read this thread because I knew HHM was going to post something and I was curious. I don't have a mortgage to worry about in my bankruptcy but I have learned from this forum to never reaffirm, ever, ever, ever.

What a great place for knowledge, feedback and advice.

[jst4f]

Did the trustee continue to pay the mortgage on the rental property? If not, then you are two or more months behind and may have to get the money to get current or the bank may foreclose. Does your mortgage have a clause that rental income is to be reassigned to the bank? I would think that would make a difference to the trustee. We are getting ready to file and have multiple rentals some of which are current and have positive cash flow but are also upside down so the trustee can't sell it. However, if the trustee takes the rent checks we will lose the rentals. (We do not intend to re-affirm any loan!)

[StrawberrySu]

Here is another question. If you are filing Non-consumer, and therefore your DMI isn't a factor, why does the trustee take the rental income? I understand that it becomes property of the estate, and that they usually do take it. If your excess DMI was from income from employment, that is okay, but not rental income? I guess this means rental income is treated differently than employment, disability, retirement, etc.

Also, on a rental property with an assignment of rents clause .... what happens after the debt is discharged in BK? Is the AOR clause also in effect discharged, or does it remain with the property til foreclosure?

[jst4f]

Here is another question. If you are filing Non-consumer, and therefore your DMI isn't a factor, why does the trustee take the rental income? I understand that it becomes property of the estate, and that they usually do take it. If your excess DMI was from income from employment, that is okay, but not rental income? I guess this means rental income is treated differently than employment, disability, retirement, etc.

Also, on a rental property with an assignment of rents clause .... what happens after the debt is discharged in BK? Is the AOR clause also in effect discharged, or does it remain with the property til foreclosure?

Interesting thought! We are the ones seeking to have out debt discharged not the trustee. So our debt to the bank for not reassigning the rent should be discharged. However, if the trustee is taking the rent and there is a reassignment clause in the mortgage, do the banks have the right to seek that money from the trustee and take action if the trustee won't turn it over to the bank? The trustee's debt is not dischargeable.