Unlike the common perception, many people who are in need of bankruptcy protection have assets. In this housing market I often meet with potential bankruptcy clients at Halcomb Singler who own several houses. It is not uncommon for people to be financially overwhelmed by several rental properties that they are no longer able to rent out at a price that covers the mortgage payment. Others purchased a second home during the housing boom and have now found it difficult to make the mortgage payment on the second property due to the economic downturn. Many potential clients make an appointment because they have received a mortgage foreclosure lawsuit on one of their properties due to a bad renter failing to pay them rent or simply not being able to rent out the property.
Most people I meet with at Halcomb Singler who have more than one home are surprised to hear that there is any chance that they may be able to keep the additional properties. Most of the potential clients I meet with assume that if they file for bankruptcy protection that they will be left with nothing more than the clothes on their backs. This is far from the truth and there are many circumstances in which additional real estate may be retained by a bankruptcy debtor after bankruptcy. However, there are also times where a trustee would object to the debtor retaining additional real estate. Only a bankruptcy lawyer practicing in your district who has met with you to review you case can give you an educated answer, but I will attempt a general discussion regarding the topic.
The analysis regarding a potential debtor being able to retain a second (or third, etc.) property in bankruptcy is really two-fold. The first analysis is whether there are enough exemptions to cover the equity in these additional properties and the second is whether the property is an economic drain.
First, if you own 5 houses outright Chapter 7 bankruptcy is probably not for you. When you file a chapter 7 bankruptcy you are only allowed to have so much equity in houses. In Indiana a married couple filing a bankruptcy may have $35,200.00 in equity in their residence that is exempt from creditors and may have an additional $18,700 in other tangible exemptions, which means equity in non-residental properties and other "stuff" such as your car, household goods, furnishings, jewelry. (These exemptions vary from state to state and only apply to those living and filing bankruptcy in Indiana). However, if you have your primary residence with $10,000.00 in equity and two other rental properties with little to no equity you have passed the first inquiry and may be able to keep them after bankruptcy a Chapter 7 bankruptcy.
If you file a Chapter 13 bankruptcy in Indiana the same exemptions as listed above apply. However, in a Chapter 13 bankruptcy since you make payments to the bankruptcy trustee over 3 to 5 years, so long as your creditors receive more money through your Chapter 13 repayment plan than they would have if you had filed a Chapter 7 bankruptcy and the trustee had liquidated your assets, it is unlikely that your additional equity will cause you to lose these assets through bankruptcy. This test is commonly referred to as "the best interests of creditors test."
If you have met the first inquiry regarding equity in the properties, the second stage of this analysis applies in either a Chapter 7 or a Chapter 13 bankruptcy case and is basically whether it is a good business decision for you to keep each property. If the property "cash flows," meaning that you making more off of each property each month for than it costs for the mortgage, property expenses, and maintenance expenses than that excess income will simply be added to your income in the bankruptcy and you will likely be able to keep the properties if you want. However, if you are having to take a few hundred dollars a month from your other income to keep your rental properties afloat each month, it is likely that the trustee would object to you keeping the properties.
I cannot stress enough that this is an oversimplified explanation of a complex bankruptcy issue. It is always good to meet with a bankruptcy attorney in your area to go over the specifics of your case. If you are stressing out over your financial situation and live in Carmel, Zionsville, Indianapolis, Westfield, Noblesville, Tipton, Kokomo, or anywhere else in central Indiana and would like to talk over your situation give Halcomb Singler a call at 317-575-8222 or click here.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.
No comments:
Post a Comment