Considering Bankruptcy Rental Prop Question

[kls4c]

I'm really glad to see this site. A lot of great information.

I'm considering bankruptcy as I'm heavily in debt. Quite a bit of it was incurred due to a business. Initially the business was able to pay the bills without a problem. To try and keep everything paid, and keep my credit in tact, I used my savings and all that I could pull from my retirement savings. I don't own the company, but I am an officer. Now I don't have the money to pay everything, I have called most of my creditors to tell them.

I own 3 properties. One is technically a rental property but I haven't received any rent or payments on it in 5 months and I'm behind one month and last year I took a loss on the property.

I've been doing a lot of research to see if I would have to file c7 or c13. It seems as if I can't use the business to override the means test because my properties would make me have more consumer than business debt (At least I think). I have a full time job, but I earn more money than is allowed to be exempt from the means test and file c7.

Unsecured debt: $140K ($50K is specifically buz credit)
Secured debt: $600K

Question: If the mean test is applied and I do receive rent from the rental property (which will be about $200 less than the mortgage) would this be income? Would it be be better for me to keep the rental property or sell the property? 2 of them are behind one month. I've decided to sell one of the properties for sure to down size, and either sell or keep the rental property.

Any information would be helpful. Thanks

[justbroke]

FYI, if those are rental properties, then that is considered a business by the IRS and the U.S. Bankruptcy Court.

Anyhow... I would get out of this business if it has a negative cash flow. The Trustee won't let you keep them, in a Chapter 13, if you have negative cash flow. I imagine that you have never attained a debt service ration over 1:1. I would get out of the rental business.

(This is coming from someone who was taking down with high debt, loss of all my savings (except some 401(k)), and inability to keep my properties. Just get out!)

[kls4c]

Your comments make a lot of sense. I've been paying out of my pocket, while I was trying to rent out under section 8, but they drug there feet about the inspection and I was told they would go back for back rent. The inspector has knit picked everything, now I'm told they won't go back. It's not worth it, I don't need the headache.

Your comment the 'Trustee won't let me keep them', does that mean that the property would get sold through bankruptcy? or how does that work?

[justbroke]

The Trustee doesn't like negative cash flow businesses, unless you're in a 100% plan. If you're not in a 100% plan, you'd have to get rid of that rental business.

You would just "surrender" the properties int he Bankruptcy, and the Banks would foreclose on them.

If you're really losing your savings and all your money on these, just get out now. Trust me. You'll just dig a real deep hole and wonder where 6 figures of cash has gone... let alone now have 6 figures of new debt on credit cards.

[outofluck07]

Negative income rental properties...

Justbroke is absolutely correct - jusy stop paying and let them go. I was given the same advice by 3 attorneys. Watch the rental income and timeframe for filing though - the rental income can kill you. I made my tenants move and left mine vacant just so nobody could say I was collecting rent.

[justbroke]

J Watch the rental income and timeframe for filing though - the rental income can kill you. I made my tenants move and left mine vacant just so nobody could say I was collecting rent.

Excellent observation! I, unfortunately, didn't notice this and while the tenant did not pay all months, I still got hit with $400+ a month in "income" from the property I included in the Bankruptcy. (To make it worse, the Trustee seems to think that I still get this $400+ a month and that's just not true. That's why I'm fighting my payment now.)

[deadbroke99]

But don't they also take into account the mortgage payment on the rental property? In my case, the mortgage payment was the same as the "rent" the investor paid so I didn't have any income per say just my mortgage was paid. Now the investor has flew the coop and nothing is being paid.

[justbroke]

But don't they also take into account the mortgage payment on the rental property? In my case, the mortgage payment was the same as the "rent" the investor paid so I didn't have any income per say just my mortgage was paid. Now the investor has flew the coop and nothing is being paid.

That is problematic for a Chapter 13. In my Chapter 13, just as I filed... my tenant was planning to leave. They left 3 months into my Chapter 13, which changed everything! I had no money coming in for the property and had to pay the note ($1,300+), insurance ($50), and taxes ($200). The Trustee wasn't going to like that, so I surrendered the property. The tenants also hadn't made a full payment since April. (Long story, please don't ask how I got into that situation)

Anyhow, all of your expenses to operate the property are taking into account. Unless you're in a 100% plan, the Trustee isn't going to like negative income on rental properties.

[deadbroke99]

We are going to try for a Ch 7 and surrender the rental but we are about 20,000 over median. I am afraid we will be pushed into a 13. We have the paperwork to fill out but I am in the process of gathering all my required stuff and paying the rest of the money to the lawyer.

[kls4c]

Real estate seemed like a good decision at the time, but I'm really starting to regret that decision. I also think I may be pushed into chapter 13, but I'll have to wait and see.

[cyn5]

So for your rental properties that are losing money/unrentable are you putting your payments, assoc fees on line 42 Subpart C: Deductions for Debt Payment on the ch 7 means test? I am reading here in the Nolo book for this line that "You can include your contractual mortgage payments even if you will be surrendering your home, and therefore won't actualy be making those payments." I am hoping this means for any property you own, not just your primary residence. Can associations fees be added here as well since the hoa has a secured interest in the property and can put a lien on it if you don't pay?