Strategic Default - BK planning

[burgCentral]

Thank you for your time,

In 2013 My wife and I separated but didn’t divorce so I could stay on her insurance. We both each purchased a home, her in Riverside county and me in Los Angeles county. We got back together about 2 years later 2015, I moved in with her and converted mine into a rental property but also took a silent partner on my prev home which we own 50/50.

My parents in 2013 also transferred their rental property in Las Vegas under my name, I believe it’s called a quit claim deed, no money was exchange, its now valued at $250k. They are in their 70s and was unable to maintain the rental property. I use the income from that only to pay the bills for the rental property and also some misc. bills they incur.

My wife’s home is valued at 550 w/ a balance of 300. So 250k equity
My prev home now a rental is valued at 350 w/ a balance of 170 so 180k in equity
And my rental in Las Vegas has no loan and has 250k in equity.
My wife’s house is only under her name, my now 2 rental properties are under my name only.

I have a business that is failing and losing 5k a month. I have the fallowing debt.
30,000 under my c corporation, but I am a guarantor on the loan
30,000 in personal credit card debts
20,000 to my landlord, its under my c corporation and I am also a guarantor
20,000 to my accountant under my corporation
20,000 in sales tax (this i have to pay)
10,000 misc. loans under my corporation, but I am also a guarantor
Totaling $130,000

I know I have a lot of equity and the trustee might make me sell them to settle my debts. Between me and my wife we only take home around 4k. but my mortgage alone between her home and mine are $3600 and we have many many more bills.

My Questions are:
Am I Bankrupt? Should I file chapter 7 or chapter 13 or just default and make payment arrangements.
Can I transfer back to my parents their rental with no money exchange and if so, how long before I can file for BK.

Thank you for your time,

[justbroke]

You are insolvent.

The questions of transferring property back and forth between "insiders" (such as family, friends, and business associates) is a tough area to be. Especially if you're doing it to move the property out of the reach of creditors. I'm sure that when a Trustee sees the house QC (quit claimed) from parents to you and then back... before filing (even 2 years before filing)... that would certainly pique their interest. Additionally, all those properties have equity... and serious 6-figure equity at that. That will also be difficult to protect in a bankruptcy.

In Arizona, you can only protect $150,000 of equity in a property under the homestead exemption, so something would have to give. The Trustee would certainly force a sale of the property or properties (since you can only exempt one property as homestead).

Now, having wrote all that, I would sit down with an estate/bankruptcy protection attorney who specializes in this area. Absolutely do not go by what you read on the Internet. You have serious equity and a few properties here in the mix. To make things even more interesting, California is a community property State, so dealing with this needs to be done someone that understands the interaction of California law related to community property.

If you're losing $5K/month in a business, it's time to get out of that business. It may also be time to liquidate one or two of the properties. Your strategy of trying to do some strategic defaults on debt and then negotiating -- hopefully with money from the liquidation of properties -- could work. It just needs lot of thought and planning.

I'm sure someone else will chime in, but that's just my $0.02

[despritfreya]

1. You live in California. California is a community property state. But for personal guarantees and real property debt (unless both of you signed) all debt is the debt of each spouse. It does not appear that you have listed your wife’s debt such as credit cards, medical bills, etc.

2. While the home in your wife’s name may not be “community” there could be an argument that any “equity” built up by the contribution of community income to service the mortgage and/or the upkeep of the home is “community”. This is the same for the two properties only in your name. Not a big issue but one you should be aware of.

3. Unless there is a lot more debt out there that you have not listed, you are not “bankrupt”. You have more than sufficient equity in the three homes to pay the $130k of debt you did list.

4. If you are looking at a bk it IS NOT a Chapter 7 unless you are fine with the Trustee collecting the rents and selling one or more of the properties to pay your debt.

5. If you are looking at a bk it is most likely a Chapter 13 where you (and your wife) would propose a 100% repayment plan. This would “protect” the non-exempt property.

6. If you are looking at a bk you ARE NOT transferring anything. Even outside of bk you should not be transferring title to the properties unless all creditors have been paid.

7. Since you have so much equity, maybe look at selling one of the properties to pay your debt. Or. . . take a mortgage against the property to pay your debt.

Hope this helps.

Des.

[bcohen]

It sounds to me like it's time to close the business, default on the business's debts, and attempt to settle with the creditors. You have too much property to risk in bankruptcy, so that is not an option. The important thing is to cut your losses, and close the business ASAP!