Rental Income Question-Chapter 7

[Guest]

My wife and I are planning on filing chapter 7 sometime in the next 6 months or so, solely because of our rental property that is drastically underwater. Last month, at the advise of our lawyer, we stopped paying the mortgage. We are still collecting rent, however, and are wondering what to do with the money? Our lawyer told us that we should continue to collect it while we can. But if we continue to collect it it will add up pretty quickly and I am wondering how this will look when we eventually file. Won't this money have to be given to the trustee? We are in CT, if it makes any difference. Thanks in advance!

[keepmine]

You need to discuss this with your lawyer and see if CT. has some sort of wildcard that will allow you to exempt cash.
You may well need to spend it down prior to filing.

[frogger]

You need to check your loan paperwork. Your rental money may be assigned to your lender, therefore, it is technically their money.

You could be placed in a position at the 341 meeting where the bank wants to know where their rent money is. If so, it would be in your best interest to be able to produce it.

Collecting rent money is not a problem, however if I were in your shoes (and I have been), I would set that rent money aside so if and when you are asked for it, you are able to produce it.

Your mileage may vary................

[justbroke]

Definitely speak to your attorney about "assignment of rents" (AOR). (This is what the green guy, frogger, is addressing.) In some cases the lender either doesn't care, or there is no AORf clause in the mortgage. This lack of an AOR clause could be that the home was originally purchased as a second home or a primary home but later converted to an investment property. In either case, the clause in the mortgage (or note) is what matters.

Even if there is an AOR, you may be entitled to administrative expenses from the rents. For example, if you are paying for water or other utility services included in the rent or for taxes, insurance or other expenses.

If you are unsure, please get a copy of your mortgage/deed of trust and look. If this property was not purchased as primary or second home, it is not likely to have an AOR clause.