Rental Income

[bkinMA1985]

My husband and I are planning to include our multi-family in a Chapter 7 soon that we are behind on. I've been told that we can still collect rent since we are the owners. We were planning to keep rental income so we can pay for utilities before foreclosure is finalized and so we have some savings for when we have to move. My question is isn't the trustee going to ask where this money is? There just doesn't seem to be any point to paying on a house we aren't going to keep. Also, I put away some of our tax refund that we haven't spent. What happens to that? We are in MA. I'm afraid we won't be able to have any savings for moving.

[justbroke]

I've been told that we can still collect rent since we are the owners. We were planning to keep rental income so we can pay for utilities before foreclosure is finalized and so we have some savings for when we have to move. My question is isn't the trustee going to ask where this money is?

It depends. It depends on whether the Trustee is interested in the property for liquidation. If so, then the Trustee would likely take over administration of rents and keep them in order to preserve the property and then, eventually, sell the property.

There just doesn't seem to be any point to paying on a house we aren't going to keep. Also, I put away some of our tax refund that we haven't spent. What happens to that? We are in MA. I'm afraid we won't be able to have any savings for moving.

You would need to look to Massachusetts bankruptcy exemptions. Massachusetts does allow you to keep cash allocated for certain living expenses including rent, fuel, food, etc.

As for moving, you need to work with an experience bankruptcy attorney on when the best time would be. I'm assuming that you want to live in the multi-family until the foreclosure finalizes while collecting rent and not paying the mortgage. I can't predict what pressure you'll have from the Trustee, but if the property is severely underwater, the Trustee may just abandon the property (from the Estate). I can't predict what the Trustee will do as each Trustee and case is so unique it their own way.

If you're in the planning phase, start getting a few consultations. Make sure to ask this very question.

[bkinMA1985]

Pretty sure the house is underwater. If we keep rents for three months before we file and save, do you think this will come up or be an issue? Lawyer says noone will ask.

[ValleYum]

You can use either Federal or state bankruptcy exemptions in MA.

If you don't have home equity to protect there is a Federal wildcard for the "unused portion" of homestead in the amount of $10,825 - you can claim this 'unused portion wildcard' even if if you live in an apartment or are giving up your home in the BK. That amount is doubled if you and hubby file a joint BK. I glanced at MA's exemption - your attorney can tell you best - but the Federal Wildcard can be used to cover cash in the bank - I see (only a my quick glance) $500 worth of cash exemptions using MA's exemptions - so if cash is mainly what you are looking to protect you may want to use Federal but ask an attorney!

Federal exemptions are here: http://www.legalconsumer.com/bankruptcy/laws/#US

MA exemptions are here: http://www.legalconsumer.com/bankrup...#Massachusetts

Do you have a lawyer yet? A good lawyer can guide you to the best way to retain the most property within both Federal and state/local BK laws.

If you don't have one - make several appointments and find the one that you feel the best about. You will know. (ETA: I see you mention a lawyer in your response to JustBroke)

Make sure to ask the lawyer(s) about multifamily housing and rent collection because the Trustee will ask, too.

Hang in there.

[bkinMA1985]

MA says 2500 in bank deposits. how far back do they look? Sorry...this is so confusing. I've already bothered my lawyer with a dozen emails of questions. I'm afraid we won't be able to keep rental income or any other money that we will need eventually to rent and be prepared to put up more deposit to rent due to bankruptcy.

[LadyInTheRed]

MA says 2500 in bank deposits. how far back do they look? Sorry...this is so confusing. I've already bothered my lawyer with a dozen emails of questions. I'm afraid we won't be able to keep rental income or any other money that we will need eventually to rent and be prepared to put up more deposit to rent due to bankruptcy.

They look at what you have on the date you file. Keep in mind that if your tenants are late in paying rent on the date you file, the delinquent rent is an asset that must be listed on your petition.

ETA: As ValleYum's post suggests, federal exemptions may be more beneficial for you. It sounds like you have an attorney. Your attorney should help determine what exemptions will work best for your situation.

[ValleYum]

The money you are saving by not paying the mortgage or credit cards or other dischargeable debt could be saved and covered by the Federal Homestead Wild Card I mentioned above, you could possibly exempt cash in the amount of $21650 plus an additional Wild Card of $2300 *IF* you don't need these to cover other property and *IF* you are filing a joint bankruptcy with your spouse (if you aren't these amounts are cut by half). That is almost $25000 you can have on hand BEFORE you file (again presuming the facts I mentioned above are true). That should cover any large deposits and moving expenses and give you a nice "emergency fund"

CAVEAT: I am not talking about your keeping any rental income in the above scenarios as that is something I don't know about. Is the rent from this your only source of income?

Once you have filed, any money you manage to save is also yours to keep without worrying about the bankruptcy trustee taking it (with a few special exceptions - like inheritances and again with the caveat about your keeping the rents from your multifamily as I have utterly no idea).

We were able to use the Federal exemptions here in WA state and were able to cover our tax refund for the year (we filed in December so that was an issue), some cash in the bank, and other items that weren't covered by other Federal exemption allowances. You have to choose one "set" of exemptions to use - either the Federal or the state you live in. We chose Federal as it benefited us more.

This is a super overwhelming and emotional time and everything isn't clear. Bankruptcy law just isn't a black and white thing.

I think one of my first posts was asking *who* gave the means test!! LOL I thought you went to some test site and took it.

I guess what I am saying is try your best to read here and ask questions and take in as much info as possible. You will have an *Ah Ha* moment where suddenly these words like exemptions, means test, disposable income and the such will become much more understood.

You found a good place to ask your questions. I found it helpful to ask questions here and jot down advice or info I got and then to make a list to ask the attorney so that I got all my questions answered but without bothering him as frequently.

I hope this was helpful.

Hang in there.

[AngelinaCat]

There was a discusion a couple of months or so ago, about who gets to keep the rents during a BK, you the landlord, or your trustee since they are an asset of the estate. I have to leave for a meeting in a couple of minutes, but when I get back I will see if I can find it.

Perhaps someone else with a better memory will locate it be fore I can. Thanks!

ETA: And can SPELL better than I can when I'm running out the door!

[ValleYum]

Found it!!

http://www.bkforum.com/showthread.php?68110-Collecting-Rents-After-Filing-A-Chapter-7-A-Must-Read

I remembered only after you mentioned it, AC!! Yay! This should be helpful for the OP!

[bkinMA1985]

Good thread, thanks! Sounds like it's gone both ways for different people. I get the impression from my lawyer that we can still collect rent but will be responsible for landlord stuff until FC is finalized. This is my fear as I don't see how I would be expected to not collect rent and then still be responsible for utilities, insurance etc., especially if we move out of the house. But it sounds like some people are staying in their homes awhile. But to think I may have to pay a water bill in support of other people and not getting rent seems a bit off to me. Sorry I don't mean to sound like I expect others to support me to live rent free for awhile, I'm just worried what our responsibilities will be until the bank forecloses.

[bkinMA1985]

Valleyum, no homestead. I know...stupid. We didn't know about homestead until not too long ago. It was never mentioned to us. Can we get one before we file?

[ValleYum]

Valleyum, no homestead. I know...stupid. We didn't know about homestead until not too long ago. It was never mentioned to us. Can we get one before we file?

You don't need a homestead to use that big ~10k Federal Wild Card. People who rent or are in foreclosure limbo can use it, too. It is for the UNUSED portion of homestead but you don't have to have a homestead filed to use it. See what I mean amount bankruptcy laws being clear as mud?

Your state laws (if you choose the state bankruptcy exemptions) may be different about your need to file for homestead.

Ask your attorney to make yourself feel better (and as always to double check advice received here!) Add it to your list!

[nohoneymoney]

Found it!!

http://www.bkforum.com/showthread.php?68110-Collecting-Rents-After-Filing-A-Chapter-7-A-Must-Read

I remembered only after you mentioned it, AC!! Yay! This should be helpful for the OP!

As instructed by our attorney, for one month prior to filing and up to the 341 meeting we kept the rent and paid only the expenses associated with the property and sent any remaining money to the bank for the mortgage. We were instructed not to use it for personal expenses. We kept records of all the money in and out. If the trustee wanted the rent, s/he would contact us. If not, the rent money was ours. Since all of our properties were underwater and most had negative cash flow, the trustee never asked or discussed the rental properties. If they take over the property, the trustee will be sure the utilities, etc are paid. Since each district is different, you should discuss your options with your attorney.