Legitimate way from being forced into a BK 13?

[angles]

OK, so it turns out our attorney is not paying attention to our situation and on our final interview (over the phone for our convenience) and before reviewing the petition I ask him the question of the possibility of us being forced into a BK 13? He shuffles a couple of papers and responds somewhat surprised, yes, very likely. I have not slept at all since.

I am hoping this is salvageable and the stress is killing us. The reason we are filing is because we have a few rental properties that we purchased over several years and the income has dropped dramatically since the foreclosures started and we can no longer support them. After we file we had planned on letting them all go but if we do this we will have positive household income (from our regular jobs). After looking at what each property costs us, we think if we keep two or three we can show slightly negative household income and this should keep us out of a 13. The properties we keep may have the potential of appreciating in the next few years and historically has had good renters but if something bad happens they could end up costing us more then we originally thought. My question is if we kept the properties through the BK process but later find that we cannot support them after the discharge can we let them go without any problems?

[Flamingo]

When one is in the position of needing to file bankruptcy, what one wants to do and what one can do are two different things. You cannot pick and choose what you want to do. It all depends on income, assets, debts and state requirements/exemptions. The new law passed in 10/05 forces more people into Chapter 13 because they can afford to pay back some of the debt. Since you were/are involved in a bsuiness scenario, get yourself several more consultations with some attorneys who handle business BKs so you know what you can and cannot do in the state in which you reside.

[justbroke]

The reason we are filing is because we have a few rental properties that we purchased over several years and the income has dropped dramatically since the foreclosures started and we can no longer support them.

If all those investment properties add up to more than 50% of your total debt... then you are a non-consumer case! There is almost no way you can be forced to a Chapter 13 or dismissed unless you lied on your petition or committed fraud.

Your attorney should be filing a non-consumer Chapter 7. (If your total investment properties mortgage balances is more than 50% of your total balances both consumer and non-consumer. Note, that if you live in a $900K personal residence and own 5 investment properties at $100K each and that's only $500K, then you won't pass the non-consumer test.)

My question is if we kept the properties through the BK process but later find that we cannot support them after the discharge can we let them go without any problems?

This is something your attorney or a good asset protection attorney can help you decide. My personal opinion is that you ride-through the bankruptcy and DO NOT reaffirm the debt under any circumstance. That way, so long as you pay, you keep the properties, but owe nothing. If you keep paying, you keep the property. If you don't pay, foreclosure will come, but you won't be liable for any deficiencies. I call this the best of both worlds. The power of the discharge along with the power to keep the property!

[angles]

Justbroke,

Thank you so much for responding. This is exactly how we understood what was happening with us in the beginning until we go the curve ball answer. We are filing for a non-consumer chapter 7, and we have no personal dept other then our own home. We have been completely honest with the information we provided to the point where our attorney was asking us to revisit some of our numbers because there is no way we could be spending as little as we listed for some of our household expenses. Admittedly, we have been conservative with our numbers but because we don’t want to give any reasons for someone to suspect we are spending more then we should in any areas.

Just a basic background on our financial situation, our personal mortgage takes up just 30% of the total mortgages that we pay out. The overall income of the rental properties is negative 1,000 when there are no problems or surprises, which rarely occur. According to our attorney we can keep the properties that are worth less then we owe but don’t have to reaffirm the debt.

For clarification (and hopefully our sanity), if we decide not to keep any of the properties, which will eliminate our debt resulting in a positive household income, can we be forced into a 13 or some other kind of payment/recourse plan?

BTW, we would have never known to ask the important questions without the help of this site. Really, thank you to everyone for participating and helping us. After this is all done we hope to repay by sharing our experiences so others can benefit as well.

[newbie2]

You can never be forced in to a Chapter 13. It is voluntary. I hope all goes well with you with your Chapter 7.

[angles]

Good point, I should have not used the word "forced". I guess what I am afraid of is that the non-consumer chap 7 would not be discharged because we could have a positive household income if it was.

[justbroke]

JFor clarification (and hopefully our sanity), if we decide not to keep any of the properties, which will eliminate our debt resulting in a positive household income, can we be forced into a 13 or some other kind of payment/recourse plan?

If you are truly a non-consumer Chapter 7, there is not much a Trustee could do to "force" you to a Chapter 13. As already posted, you really aren't forced, since you can decide to let the case be dismissed.

When you're a non-consumer Chapter 7, aside from maybe some scrutiny on a brick-and-mortar business, you pretty much are going to get your discharge unless there is fraud. I have seen that debtors -- like myself -- that have investment properties that make them a non-consumer case, and don't operate any other traditional business... go through Chapter 7 real easily! There's nothing for the Trustee/UST to really research other than the property values! With a traditional business, the Trustee/UST loves to dig through the "balance sheet", A/R and other facets of the business finances.

[angles]

Justbroke,

Thank you for posting. It really gives us some hope with our situation. Can you share more information as to your non-consumer filing with regards to rental properties? Not too many people seem to be in this situation and I have not found any information on it.

I know I keep dwelling on this, but it scares the heck out of me and I really don’t understand the process…will there be an issue if it looks like we have positive household income after letting the properties go? The way I understand is in a consumer BK 7 any excess household income (I think it is called an I over J) could lead to a dismissal. In a non-consumer it sounds like this would not be the case? We really want to file non-consumer BK 7 and have a successful discharge.

[justbroke]

I can share... what do you want to know?

(By the way, mine was successful!)

[blessed]

You keep asking if you will be pushed into a Ch13 IF you let go of the properties and suddenly have positive income. So maybe this is a dumb thought, but why not just wait until after the discharge to let the properties go? Put on the petition that you intend to retain and pay.

What am I missing?

[justbroke]

Put on the petition that you intend to retain and pay... What am I missing?

You're not missing anything. That is exactly what I did. I also received a modification during the pendency of my Chapter 7.

[blessed]

That was to the OP but yeah, you did it so that would work.

Congrats on your discharge btw!

[angles]

You're not missing anything. That is exactly what I did. I also received a modification during the pendency of my Chapter 7.

[justbroke]

Then the question becomes can the trustee take any of those debts out of the equation in order to direct us towards a 13 under the basis that we are holding those debts to stay out of a 13?

Not in a non-consumer Chapter 7. The UST is very limited in that s/he can only file a general motion under 707(a) for fraud or "cause". The word "cause" in 707(a) is a high bar, and while having the "ability to pay" can be a factor, they must prove something else... like you lied on your petition or hid assets!

[QUOTE=angles;416538]707(b) is the rule that allows this in a consumer BK, but 707(b) does not apply to a non-consumer BK although some trustees approach it as if it does.[/QUOTE}Exactly. But don't worry about USTs that try a 707(b) motion on a non-consumer filer. It is quite obvious in the code that 707(b) doesn't apply! (11 707(b)... "may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts...")

I was worried and nothing happened at all. Not one peep from the UST. My case was well documented though.

[ColoradoBell]

I don't have anything to add except...sounds like you are safe if you keep your rentals until after the discharge.

But I do have a question for justbroke: About 3 years ago I entered into a lucrative investment in Costa Rica. I used my share of a jointly owned property to collateralize (is that a word) the loan. I've been paying interest only on it ever since.

Is that a nonconsumer debt? I think I qualify anyway for a 7, but I can no longer afford the payments so I 'm thinking of letting it go...should I keep it so I can claim
nonconsumer and just not deal with the means test at all?

(sorry OP, didn't mean to hijack your thread with my question!)