Expert: Mark J. Markus- California Bankruptcy Attorney - 4/7/2010

Question
QUESTION: We had two stores in NY.  We closed them both in Nov-2009. We have two SBA loans – one for each store. Both stores have a lien against the house. We filed for Chap-7 in Dec-2009, went to court in Jan-2010 and were discharged of all debts (except of course, the SBA loans) in March-2010.

Our house is worth $480,000. The primary mortgage (lien # 1) has the outstanding balance of $267,000. The home equity loan (lien # 2) has the outstanding loan balance of $123,000. The outstanding loan balances on the SBA loans (lien #s 3 & 4) are 180,000 each – total $360,000.

After liens 1 & 2, the equity on the house is $90,000.

What options should we pursue? Should we negotiate with SBA? Thanks.

ANSWER: I'm not sure I understand your facts completely.  Are these "stores" you refer to separate legal entities, like a corporation or partnership?   Did you have an ownership interest in these stores?  If so, why would the stores have a lien against your house?  The SBA may have had a lien against your house.  Is that what you meant?  If so, is this a voluntary lien (one you agreed to) or a judgment lien?

Assuming you personally guaranteed or were primary on the SBA loans, and you filed a personal bankruptcy, the SBA loans should have been discharged.  What makes you think they were not?  Any liens the SBA had on the date your bankruptcy case was filed remain against your house (or other collateral if it attached to any) after your bankruptcy case was over remains against that collateral unless you took steps to remove (avoid) the lien in your bankruptcy case.  You can only do this if it is a judgment lien (involuntary lien) and it impairs an exemption to which you are otherwise entitled under applicable non-bankruptcy law. I have no idea what NY's homestead exemption is, but if it is large enough, it is possible that you might be able to reopen your bankruptcy case to avoid the part of the SBA liens, but ONLY if they were judgment liens.  

If you meet this criteria, you should consult with an attorney in NY familiar with the exemption laws in your state to analyze your situation and assist further if necessary.

http://www.bklaw.com/   

---------- FOLLOW-UP ----------

QUESTION: NY state's homestead exemption is $100,000 ($50,000 each for me and my wife).  Yes, the stores were a legal entity and we had taken SBA loans for each against the house.  Thus, both SBA loans have the lien against the house.  As I understand, Chapter-7 takes care of the judgement lines but not the mortgage lines, right?   SBA could come after us and force the foreclosure, right?   We are just worried what to do.  Do we just wait until we hear from SBA or do we make our offer to negotiate and end this whole thing as soon as possible,  Thanks.

Answer
Yes, that is correct, the lien survives unless you take the steps previously mentioned.  Yes, they can foreclose if you don't pay them.  I don't think it matters when you start negotiating with them, but you will have to make arrangements at some point.  It's more a matter of your means than the timing.