Business Debt Bankruptcy Question, Investment properties

[Snapfish]

I own 15 rental properties as my business (over 2 million in secured debt). A few of them are so far upside down, and I am letting them go into foreclosure. I also owe over $330K (used to finance the property business) in unsecured debt, which is why I have to file for bankruptcy, as I cannot afford to make payments on this debt anymore.

My goal is to keep around 10 properties which I am current on and can afford to pay the mortgages on those. None of them have any equity, so my question is, am I allowed to keep them in a Chapter 7 since they have no equity whatsoever in them?

The income I make from these properties is how I make my living, and from what I have read, since over 50% of my debt is business debt, I don't have to worry about the means test. Not that I make all that much income from the buisness anyway, but it is enough to get by.

**I really need to keep all 10 of these current mortgage properties, since all though they have no equity and are worth nothing now, I am starting an assemblage I think an investor will be interested in someday. I have worked for 5 years on this project, and I don't want to give that up if I can help it***

I would be willing to go Chapter 13, (which would def protect my properties) but my debts are too high to make that an option. But as far as I can tell, with no equity to go for, the Trustee wouldn't likely want to sell my houses or put me out of business. I hope!

Has anyone had an experience with business debt or investment property in Chapter 7 that they could share some insight or thoughts? I would really appreciate it!!

[HHM]

If there is no equity, then the properties are not at risk as far as the bankruptcy trustee is concerned.

I sincerely hope you hire an attorney, this is not a case you want to be doing on your own (pro se). You are correct, you cannot do a chapter 13 because you exceed the debt limits; so that leaves you with chapter 7 or chapter 11. Now, if the 10 properties you want to keep are negative equity, you may want to consider a chapter 11.

[Snapfish]

Thanks for your reply. I thought as much. I will def hire a lawyer. I have already spoke to one who comes highly recomended and made me feel like he really knew what he was talking about.

However, in our meeting, he suggeted I foreclose on the 5 properties I was planning to, in order to get my secured debt under $1 Million... and then file Chapter 13. This seemed like a good idea at first, but that would take so long to wait for 5 foreclosures to process and I am already close to the limit on unsecured debt which I cannot afford to pay anymore. With late fees, even if I get under the limit for secured debt, I would prob be over in unsecured.

So with doing research on my own I found out I might be able to do all this under Chapter 7 anyway. My lawyer told me that Chapter 11 is too expensive to consider. So very soon here I will be contacting him back about filing Chapter 7, since I plan to file in about 6 months.

Also, something else to consider.....
I rent my houses out furnished. Do you think the furniture would be considered assets for sale to the Trustee? All the furniture was purchased second hand from Goodwill, so it's not worth anything, but it is there.

I wouldn't mind selling it, but when I file, I will have tenants in there who have leases to a rental that is furnished. So obviously I want to leave it there. Maybe it is a business expense somehow?

[justbroke]

As HHM points out already, you have debt limit problems (11 USC 109(e)) for a Chapter 13. You'd be in a Chapter 7 or a Chapter 11.

Whether the Trustee will "abandon" the "other" properties will be a total gamble in a Chapter 7. If you really want to keep them, you are probably better off in a Chapter 11 (as HHM suggests).

With the types and quantity of assets and debt that you have, this is not a case to do as a pro se filer.

This is a business decision in the strictest sense. Just how much under are you on the other "10" properties? Is it more than 10% in aggregate? Why would you carry that much negative equity when you could be free? Is this just an investment opportunity that you believe will payoff in the next 5, 10, 15 years? Are you willing to take the risk that if this doesn't pan out, you will not be able to file (bankruptcy) again for 4 or more years after your discharge?

All business decisions!

Also, answering your next post... the $1M in secured debt limit is not the problem. The problem is your $330K+ unsecured debt which is scaring me (I'm RIGHT on the limit). Chapter 11s are expensive, but you can run them yourself as a Debtor In Possession (which sounds nice) However, Chapter 11s are no joke and take much longer to get a confirmed (workable) plan.

[frogger]

You didn't mention, but are all of them financed with the same company/bank or are they financed by different ones? If you're financed at one location, I don't think the bank is going to foreclose on the ones that you're upside down on and not the others.

Most banks cross-collaterize, so if you loose one, you're probably going to loose them all.

And..... as a landlord myself, I'm asking the question: Why are you wanting to keep property that has no equity, unless you have tremendous cash flow? If it has great cash flow, then it has value. If not, what are you going to do when you need money to repair or replace? Can't borrow money with no equity, and the foreclosures/bankruptcy is not going to help either.

In my opinion, we've only seen the start of the "housing crisis". There are a lot more landlords left that are going to go under, including me. You take a few landlords in smalltown America (like where I'm located) going under, and it's going to make the housing problem get worse.

Next comes the commercial property crisis. That one has not even warmed up yet...