Expert: Terry Leeders - 4/22/2009

Question
Hi there,

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 and cover all my mortgages.

Choosing chapter 7 or 13 is my problem.

My goal is to keep around 10 properties and I 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 (if I pass the means test) since they have no equity whatsoever in them?

The income I make from these properties is how I make my living, but I am sure it is not enough for me to fail the means test for Chapter 7.

I have been to see a lawyer, and he pushed me towards Chapter 13, saying that is the only way I can keep the properties, (however this would be a much harder route, since I am over the debt limits for both secured and unsecured debt) but my research is leading me to believe that as long as I have absolutely NO equity in these properties perhaps the trustee will let me keep them?

I would appreciate any guidance you could give me.

Thank you!!

Answer
You have too much debt for chapter 13.  There is a debt ceiling for secured and unsecured, which you are over in both instances.

That leaves chapter 7, but you would then be subject to a means test issue (depending on the nature of the debt -if more for business, then the means test might not apply) as well has having to stay current on the homes you wish to keep.  The court will then look at the monthly income/expenses to see if you have 'disposable monthly income' if so, they could deny the chapter 7.  You would also need to show that there is no equity for the court to go after in a chapter 7 in the ones you wish to keep, otherwise they could be sold to pay your creditors.

You also may want to look at Chapter 11, which is like a chapter 13.
You can restructure your debt and keep the assets you want.  Since ch13 is not an option, you may want to talk to a lawyer about that as well.