Can I Collect Rent If I’m Surrendering Rental Property in Bankruptcy?

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Person Writing on LaptopRental properties can be a great source of income until a renter moves without notice or fails to pay or that rental income starts to be used for your personal household expenses.  As situations arise, many people are finding it necessary to file bankruptcy and surrender the extra properties and the mortgages that come along with those properties.  When you surrender a rental property in bankruptcy, you are in essence surrendering your interests and rights to the property.  Therefore, you are not eligible to collect rent while in bankruptcy.

Additionally, the bankruptcy Trustee sees this as unprotected funds and will request the received funds to go to the creditors.  Furthermore, tenants are always informed if a house is being surrendered in bankruptcy.  Your tenants may be well aware of their rights and have the responsibility to report a debtor who tries to collect rental income while in bankruptcy.

Once you have been discharged of your debts and have received a final decree that officially closes your case, you may begin to receive rental income.  However, approach this scenario with caution.  Even though you have completed your bankruptcy the Trustee has the ability to reopen your case and require you to pay him all the funds you had received after your discharge.  So, you definitely need to weigh your pros and cons.  If this situation sits in your future horizon, you should discuss this with your bankruptcy attorney prior to your discharge.  Moreover, if the tenants are aware of the circumstances, they may not even be willing to pay rent while still living in the home.  Since the property is still in your name until the bank forecloses, you may engage in the eviction process.  Or you could insist on the tenants paying enough to cover homeowners insurance or property taxes.  If there is a homeowners’ association linked to the home, whoever lives in the property should stay current with the HOA.

We typically tell our clients to stop collecting rent when they decide to file for bankruptcy. Instead, the tenants should pay rent to the bankruptcy Trustee or stop paying rent all together if they no longer wish to stay in the house. This ensures the bankruptcy client is not doing anything to jeopardize the success of their bankruptcy.

Do Credit Repair Services (After Bankruptcy) Actually Work?

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Credit Card Companies May File a Proof of ClaimIn this age of information it can be tough to discern which tasks we are capable of handling ourselves and which tasks we should leave to the professionals.  As bankruptcy lawyers we have clients who contact us on a regular basis and ask if they should hire a credit repair company to rebuild their credit. In short, we don’t think so.

In the case of repairing your credit after bankruptcy, an individual is perfectly capable of resurrecting his or her own credit score.  Research is all what it comes down to and having the time to fill out forms and make certain phone calls.  Six months after filing, we suggest pulling your credit report from all three credit bureaus: Equifax, Experian and TransUnion (you can pull your credit report for free once a year by going here).  You should examine these reports to make sure all debts listed in your petition have been discharged through your bankruptcy.  If a credit or collection agency has failed to report correctly, it will be up to you to be your own advocate.  First, you should send, in writing, a letter to the creditor stating when you filed bankruptcy, your case number, when you were discharged from all your debt and a request that they correct the entry with all three bureaus.  Next, go to the individual credit bureaus websites and determine the process of filing a dispute against the creditor that is not reporting correctly.  If the battle continues and you need a legal hand, you should contact your bankruptcy attorney: they should be able to fax over the necessary information to clear up any matter.

If a creditor still fails to accurately report the discharge of your debts to the credit bureaus then they could be sanctioned for violating federal laws. You could also report them to the Federal Trade Commission.

As in everything, it is important to document as you communicate with these companies.  Although they are required to document as well, it is nice to have your own personal reference, especially if you are dealing with a difficult or large company.  Make sure to stand your ground and know your rights!

Can I Collect Rent If I’m Surrendering Rental Properties in Bankruptcy?

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Want To Know What It’s Like To Be Harassed By A Creditor? Real Phone Call

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Many of those who are facing financially tough times right now are stressed out even more by creditors who call non-stop. Creditors push the boundaries on what they may and may not do to collect a debt.

For example, here is a voicemail a client of ours emailed us the other day. Our client allowed us to post this voicemail so others could see they are not alone with the constant and harassing phone calls.

After receiving the voicemail we called the number back and spoke with someone with the company. They explained they didn’t know our client had filed bankruptcy. However, we confirmed their mailing address was accurate and explained we had previously sent proper notice of the bankruptcy. We then let them know they were violating the Fair Debt Collection Practices Act and any further attempt to collect on this debt would be met with a motion for sanctions.

They told me they didn’t do anything illegal and, after explaining I had a recording of the voicemail, they hung up on us. Before doing so, they explained they would notate in their system that our client had filed bankruptcy and she would not be contacted again. To date, she hasn’t received another call.

Regardless, this phone call shows some creditors will do whatever it takes to collect on debts. If you believe a debt collector is overstepping the boundaries let them know that they are violating the Fair Debt Collection Practices Act. It is important to keep detailed notes about who you spoke with (including their identification information), what time they called and what they said. Without this information it is difficult to be successful in a motion for sanctions against the creditor.

Do My Taxes Have To Be Filed Before Filing for Bankruptcy?

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Filing Taxes Before BankruptcyYou will notice when you are filling out your paperwork that the court asks you for what seems to be a billion pieces of documentation ranging from copies of bills, papers from purchases, income advices and federal and state taxes.  These documents are asked for to verify information you are providing is true and accurate.

However, what happens if you haven’t filed your taxes?  Can you still go through the bankruptcy process or must your taxes be done beforehand?  The answer is you must have all prior tax years filed and received by the IRS and state in order to file the bankruptcy. There are several reasons why taxes are required to be filed and received before filing your bankruptcy.

The Bankruptcy Trustee, Bankruptcy Court and Bankruptcy Administrator Require It

As your attorney, are required to send a copy of your most recent tax year to the bankruptcy Trustee.  If they do not get the taxes before the 341 creditor’s meeting then they technically has the right to dismiss your case.  When April 15th (or the appropriate deadline depending on the year) hits, the bankruptcy Trustee will expect taxes to be filed as completed. What if you’ve received an extension?  Even if you have received an extension, if you are filing bankruptcy you need to file the taxes before filing for bankruptcy. This does not mean you have to pay on taxes owed but they at least need to be filed.

The Bankruptcy Administrator’s office randomly elects cases to audit. They do this to ensure bankruptcy lawyers are performing their duties but also to ensure clients are providing accurate information. It is similar to being audited by a taxing agency. If your case is randomly selected to be audited then we are required to provide those documents.

Taxing Agencies Want to Ensure Taxes Are Completed

In addition to the bankruptcy Trustee and bankruptcy court needing to see evidence of your tax filings – the taxing agencies, the Internal Revenue Service and the North Carolina Department of Revenue, also will receive notice of your bankruptcy filing and want to make sure information you are reporting is accurate.  Once they have word that you have filed a bankruptcy they will reassess your prior year’s taxes to make sure they are completed.  If they are not, they can object to your discharge until they have been completed.  If a creditor, such as a taxing agency, objects to your discharge it means your case will be held open longer.  The longer your case is open, the longer it takes to get your financial freedom.

Filing Taxes Allows You to Accurately Budget Repayments

Just like any other debt you have in your bankruptcy – the amount owed for taxes has an impact on your bankruptcy filing.  If you have not filed your taxes, and you are filing a Chapter 7 bankruptcy, then you have no way of knowing what you owe, and cannot go ahead and budget a repayment plan going forward.  If you file a Chapter 13 bankruptcy, and you have not filed taxes yet, then the IRS or NCDOR is going to estimate what you will owe them and file a Proof of Claim for un-assessed returns.  Oftentimes, the taxing agencies file the proof of claim as a worst-case scenario on your taxes, which typically, means the amount is overstated which can cause an increase in your Chapter 13 plan payment. If you file your taxes then the IRS can use the amount of taxes owed to file a more accurate proof of claim, which may increase your chances of success in a Chapter 13 bankruptcy.

The bottom line is, yes you have to file your taxes before filing your bankruptcy. We understand that it’s a pain to have to dig through your paperwork, retrieve the documents, make copies and bring them to us, but the government requires it as part of your bankruptcy documentation.

What Is Abandonment In Bankruptcy?

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Foreclosure Sign in Front of HouseProperty that is surrendered or was not protected under the bankruptcy code exemptions is fair game for the bankruptcy Trustee.  Once a debtor has filed bankruptcy, his estate becomes that of the bankruptcy court and the bankruptcy Trustee.

At that time, the Trustee determines if there is any value or potential value in any of the assets of a bankruptcy case.  If the property proves to be worthless, with no beneficial value, or the value is not worth the hassle of selling the property, the Trustee will submit a motion to abandon the property.  Once an asset is abandoned in bankruptcy, it is released from the protection of the bankruptcy automatic stay.  At this point, the property may be sold, transferred, or used by the debtor or other parties of interest, such as the mortgage company.  Abandonment can be automatic if a Final Decree is issued on a case which officially closes a bankruptcy (this is after the discharge is issued.)  A final decree labels the property for abandonment because the case has been closed and the Trustee has issued a non-distribution of assets.

To better illustrate, lets take a look at a common example. A debtor surrenders a home in bankruptcy and must forfeit a piece of land that he was not able to protect with his exemptions.  The Trustee reviews the estate and decides to hire a real estate agent.  The real estate agent explains that due to the market’s condition, the land would take over a year to sell, but the house may sell in 6 months.  The Trustee decides to put both on the market for 6 months.  Debtor receives a discharge but not a Final Decree.  The time passes and the Trustee has not even received an offer on the land or house.  To cut his losses, he decides to file a Motion to Abandon on the land and notifies the creditors there are no assets to be disbursed.  The debtor receives a Final Decree a month later.  The house is considered abandoned by the receipt of the Final Decree and the land becomes the debtor’s once again.  The mortgage company sets up foreclosing proceedings on the home and months later, the home forecloses and the debtor’s name is removed from the deed.

The bottom line is, when a Trustee abandons property they are notifying the bankruptcy court, creditors and the bankruptcy debtors that they no longer have an interest in the property.

What Does “Bad Faith” Mean in Bankruptcy?

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Bankruptcy QuestionsAs it sounds, this is not a term you care to associate yourself with if you can help it.  Bad faith refers to certain actions and circumstances that cover fraudulent bankruptcy filings.  In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was legislated to define and outline situations associated with bad faith bankruptcy filing.

One of the roles of the bankruptcy court and bankruptcy Trustee is to protect creditors from debtors who are maliciously trying to defraud the system.  Most debtors are really struggling under the weight of their debt without much hope of ever breaking even, but unfortunately, there are people who are just trying to stall or manipulate creditors.  There are 5 situations in which a debtor is considered to act in bad faith.

First, if there is evidence that a debtor is trying to unfairly thwart a creditor’s efforts to collect on a debt, this is considered a bad faith filing.  For example, a client files bankruptcy in order to stall a foreclosure with no intention of ever completing the bankruptcy.  Bad faith is relevant when a client files bankruptcy to save a home, then does not make any of the required plan payments and is dismissed.  This of course can be a very fine line and cannot always be proved; especially if a client has a very tight budget and unforeseen circumstances arise.  Most Chapter 13 bankruptcy clients are in this position and have every intention of completing their bankruptcy.  This is why bankruptcy is a very involved process and should be taken seriously by all potential debtors.

Another bad faith filing revolves around a debtor filing a bankruptcy while already in an active one.  How does this happen?  Most commonly, a debtor is dismissed from a bankruptcy and files before they have received a Final Decree that officially releases them from the first bankruptcy.  Or, a Chapter 13 client cares to convert to a Chapter 7 bankruptcy and files a Chapter 7 while still in the Chapter 13 without permission from the court.  Or a debtor tries to file bankruptcy within the time limitations, such as with 8 years of previously filing a Chapter 7 bankruptcy or 4 years for a Chapter 13 bankruptcy.

The third example would be prevalent among the debtors who care to file pro se or without an attorney.  There are certain documents and motions that must be filed with the court.  Two very important documents are the financial management certification and the motion for discharge.  Don’t know what these are?  That is why an attorney comes in handy!  A bankruptcy case may be dismissed under bad faith if required documents are not filed or presented to the bankruptcy court or bankruptcy Trustee.

Fourth, if a debtor is continually filing and being dismissed from a Chapter 13 due to non-payment, the bankruptcy Trustee may reject the case due to bad faith.  If you are dismissed from a Chapter 13 you may turn around after the final decree and file again as long as the court has not placed some limitation on your ability to file again like dismissing your case with prejudice. The big question to determine bad faith is “why do you keep being dismissed?  And what is different about your situation from your previous filings?”  Usually, this is just a due diligence question, but it is very important.

Lastly, if you fail to make adequate protection payments, your bankruptcy is automatically noted as being filed in bad faith.  Adequate protection is rather loosely defined as the initial payments in a Chapter 13 bankruptcy.  On the other hand, in a Chapter 7 bankruptcy, unprotected equity must be compensated to the Trustee in order for the debtor to keep the non-exempted asset.  If this adequate protection payment is not made to the Trustee in the mandated time frame, your case can be dismissed.

Be sure to avoid a situation in which your case may be dismissed for “bad faith.” Contact an experienced bankruptcy lawyer who can help you navigate the, often times, tricky path through bankruptcy.

What Is A Security Interest? A Debt Secured by Collateral

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Family on bicycle rideWhen you obtain a loan, in most cases the lender does not want to just give you the money, they want to make sure that you have some sort of incentive to make sure you make your payments.  What better incentive is there than taking away your property if you do not pay?  Therefore, creditors normally want something as collateral to ensure you repay the money they lent you; they are taking a secured interest in your property and the debt you owe them is a secured debt.

There are many different cases of secured interest.  You can go to a dealership and purchase a vehicle, the lender then has a secured interest, the car that you just purchased.  If you decide to no longer keep making your car payment the lender can simply come and pick up or repossess the vehicle.  Put it up for auction and recoup their money.  You buy a home, for whatever reasons, you no longer make the payments, then the mortgage company is going to come and foreclose (take your home back) on your property.  If you go to Best Buy and get a new TV, even though you don’t sit in their office and sign a promissory note like you do on your vehicle; that credit card you used to make the purchase acts the same.  Best Buy still has a secured interest on their goods (the TV that you purchased). This is what’s called a purchase money security interest.

Most debts are unsecured debts. Meaning they do not have a security interest. Most credit cards, medical bills and personal loans are without you putting collateral up for the debt. However, you know a debt is secured if you have property the creditor can come and get if you do not pay the debt.

Companies have rights just as consumers do in order to protect themselves, when you purchase something whether it be a car, a home, jewelry or furniture, companies need to know they will recover the money due to them and, therefore, use collateral as a secured interest. If you cannot make the payments, they can recover the collateral and try to sell it to recover the amount they loaned you.