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I
received a letter yesterday from my lawyer. He was
confirming his replies to my three properties (see
them here) of which I
had been served foreclosure papers. He also requested a
meeting with me this coming week regarding changes to
bankruptcy here in Florida. We have set up a meeting for
Wednesday afternoon (07/02/08), and I will update this blog entry
after that. You can subscribe on the
comments page to be
emailed when I update the entry.
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Apparently, the U.S. Trustees Office has formulated a
new position in regard to whether investment debt, such
as my condominium properties, qualifies as non-consumer
debt. Under the Bankruptcy Code, a Creditor whose debts
are primarily consumer debts must meet the means test
and cannot file Chapter 7 if the Debtor's income is over
the means test thresh hold (previously, we had
determined that my income put me above the means test); but if the debts are not
primarily consumer debts, then the means test does not
apply. The U.S. Trustees Office is taking the position
that investment property debt is not consumer debt.
Accordingly, my lawyer believes that I may qualify to
file Chapter 7 instead of Chapter 13. In Chapter 13, I
would have had to setup a five to seven year repayment
plan on the real estate debt that I have even though the
houses would have been sold in foreclosures anyway.
Plus, I would have been put on a budget according to
U.S. national averages - I would prefer to be anything
but average (Give me poor or well-off, but not average).
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What
is odd is that this is not a change to any bankruptcy
law. This is a change in opinion to the law. Again,
everything goes back to opinion (see
my previous entry about legal advice). Of course, it
sounds like a good change in opinion to my favor (and
the favor of other people who find themselves in similar
situations). This is great considering the bankruptcy
laws were changed a few years back in favor of the
banks. It is nice to see that even though Congress,
individual politicians and the White House cannot do
anything that will actually help the American public,
the court system might be able to help instead. One out
of three legislative branches ain't bad.
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| Update (07/03/08) |
So I met with my
lawyer for about half an hour yesterday. The
purpose of the meeting was to see if I might now
qualify for Chapter 7 bankruptcy given that the
U.S. Trustees Office has taken a different
stance on consumer versus non-consumer debt for
determining Chapter 7 bankruptcy qualifications.
My lawyer and I listed out my debt - $880,000 on
primary residence; $249,000 on a rental condo;
$305,000 plus $150,000 on a rental condo in
which I used to live; and $78,000 on a townhouse
in Alabama in which I lived after the hurricane
but now rent out. While the new interpretation
on debt would consider the rental properties
consumer debt, all of that debt does not exceed
the debt on the last house I bought and lived in
as my primary residence. This leaves me still
subject to the means test for determining if I
qualify for Chapter 13 or Chapter 7. Since I
make too much money, I do not qualify for
Chapter 7 and would be required to file Chapter
13. So whereas the interpretation has changed,
my situation has not changed. Under Chapter 13,
I would have to give back all of the houses in
foreclosure and then setup a payment plan for
five years on the debt that was not paid when
the banks sell the properties (I could probably
keep the Alabama house and continue making
payments on that one). With how things are going
currently, I am going to wait it out and see
what happens with the foreclosures before I
seriously consider filing for bankruptcy. Who
knows what might happen; and right now, I am
doing fine - I have a nice place to live; I have
a good job; I have a new car... I just have to
get rid of these real estate properties.
While I was meeting with my lawyer, we did discuss a
few other relevant topics. If any creditor
eventually decides to garnish my wages, Florida
law only lets them garnish up to twenty five
percent (25%) of my net wages - gross wages less
tax withholdings. I am already cutting back on
my monthly expenses so I could deal with that
and still live well. The foreclosures have to be
finished before a judgment for garnishment can
be granted as the creditors have to know how
much the properties sell for and how much of the
debt is left over after that.
Seizure of my assets is also another big concern of
mine. In Florida, the funds in my 401k and in my
Individual Retirement Account (IRA) can not be
taken to settle debts. While I can borrow money
from my 401k and use that borrowed money to pay
off my other outstanding debts, that is
completely up to me. A couple of the banks have
asked me to do that, but they cannot force me to
do that so for now that money will remain in my
retirement accounts.
The house that I have in Alabama could be forced into
foreclosure to settle debts, but the creditors
would have to file a separate claim in Alabama
for this property or they could put a lien
against it in case I ever sell it. My intentions
are to hang on to that property as I might need
to live there one day. I can do little to
protect it so I will have to just wait and see.
The cash in my checking account and in my savings
accounts can be seized by creditors to pay debts
after they get a judgment against me. Plus, the
money in my non-retirement brokerage accounts
can be taken once a judgment is granted. I am
considering now what to do with these accounts.
I could roll that money into the 401k or into
the IRA; but if I later file bankruptcy, that
money might not necessarily be considered exempt
as I rolled it in there just to protect it - and
the bankruptcy courts can look back over two
years to check for things like this.
My personal assets like my furniture could be seized
and sold to settle debts, but I do have a
certain dollar amount that can be protected from
judgments - about $4,000. That is not much, but
it is a little help. My lawyer, however, stated
that he has never seen this done and considers
it to be highly unlikely.
My car is another concern of mine. Since I leased my
vehicle, it is not considered an asset of mine
so I just have to keep making those payments to
keep it current. That was a relief. I do,
however, have a 1996 Ford Taurus that I kept
when I got my new car. The Taurus could be
seized and sold, but I would get $1,000 back
from the sales price if it does sell. It is an
old car and not likely to sell for more than
that.
I thought this was quite a bit of good information from
our half hour meeting (I will be getting my
lawyer's bill at the end of the month). It has
helped to keep up my spirits and my affirmation
that I may not have to file bankruptcy. My plans
are still to go through the three foreclosures
(unless I sell the properties before the
foreclosure sales), and then deal with the
remaining debt in negotiations. I am hoping that
the creditors will write-off a lot of the debt
to an amount that I can actually pay off. There
will probably be federal income taxes on any
forgiven debt that will probably give me a
tremendous tax bill that I will be unable to pay
so I will have to negotiate that as well, but
there are tons of companies that negotiate down
tax bills for people. Congress has already
excluded such taxes against primary residences.
They might do more as the country's foreclosure
problems continue - and I do not see any sign of
things getting better in my area yet. |
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From Mortgage Payments to Rent Checks
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