Real Estate Issues In Chapter 7 And Chapter 13
When considering filing for bankruptcy, there are numerous critical considerations to make, including which assets you value most in your life. For many people, one of the most valuable assets, both in monetary and emotional value, is their home or real estate. Therefore, when attempting to keep your home during the process of bankruptcy, it may not be a risk to begin with. However, if a series of decisions are made without the proper knowledge, there is the potential for catastrophic and irreversible damage.
To avoid the possibility of taking on a much greater risk than you may have initially intended, it is vital to find the best Real Estate Leases and Chapter 11 Bankruptcy attorney in your area. In Somerville, NJ, this resource is Michael McLaughlin, LLC. With a vast set of experience and the ability to quickly and effectively convey information to clients, attorney Michael McLaughlin can help guide you through the process from start to finish, regardless of the stage at which you request his services. To ensure your house or real estate is safe, though, it is always best to enlist the help of an attorney as soon as possible, even if you are only beginning to consider your options when it comes to filing bankruptcy.
One of the most powerful and commonly used aspects of bankruptcy in terms of saving real estate, especially as an investor, lies firmly in Chapter 11 bankruptcy. To begin, chapter 11 bankruptcy can be used by both individuals and businesses but is most commonly used by businesses. However, if it is indeed being used by an individual, it is most commonly used for one of two reasons. Either the unsecured debts an individual holds exceed the limits for a chapter 13 bankruptcy, or a real estate investor is seeking to rewrite their mortgages to better fit within their financial capabilities.
If attempting to rewrite a mortgage to property and reduce it to its principal cost, there are many issues and hurdles along the way, which can be the bane of many ordinary investors seeking to file. Unless one possesses in-depth knowledge of the law, real estate procedures, and bankruptcy guidelines, it can be next to impossible to make the system work for you in the way it was intended. Chapter 11 for Real Estate and Rental Properties is fraught with complications, and if one attempts the process underprepared, it can leave them in an even more dire situation than before. To avoid this possibility, hiring a Bankruptcy attorney familiar with real estate procedures in your area is highly advisable.
In Somerville, NJ, the office of Michael McLaughlin is ready and waiting to help anyone who comes through the door find a solution to their Investment Properties and Chapter 7 Bankruptcy Petitions. However, to ensure you find the best results, it is critical not to choose to try to navigate the bankruptcy process alone. By hiring an attorney, you can gain the peace of mind that only comes from knowing you have given yourself the best possible chance for success by enlisting the help of an expert in the field.
To start the process and find the complete range of options available to you, scheduling an initial consultation is the first step everyone must take. At a consultation with attorney Michael McLaughlin, your goals, current situation, and possible solutions will be discussed. Only then, with your input and opinion fully informed, will we decide on the best course of action to bring your current situation as close to your goals as possible. So, to begin the process, call the office in Somerville, NJ, as soon as possible.
For individual Chapter 7 or Chapter 13 filings, the issue of what may happen to the client’s most valuable asset, a home, requires thoughtful analysis and strategy. New Jersey only allows the federal bankruptcy exemptions under 11 U.S.C. §522(d) that protect the debtor’s aggregate interest not to exceed $22,975.00 of value in real property owned by the debtor that is used as a residence. In a joint case the real estate exemption is doubled.
In every case, I recommend that the clients contact a local realtor to obtain a comparative market analysis (CMA) promptly to determine whether there is equity in the home. In Chapter 7 filings, if there is excess equity, trustees generally apply a formula that utilizes 10% costs of sale in determining if debtors have equity over the exemption. Nonetheless, each trustee differs in how they utilize the formula and has the right to independently appraise or obtain his own CMA for the debtor’s residence. The petition requires a debtor to disclose, to the best of their knowledge, the market value of the property. The value of real estate can be an elusive concept and often is the subject of disagreement when trustees undertake their own analysis.
In a case where it is determined that a debtor has substantial excess equity over the exemptions, it is likely preferable to file a Chapter 13 wage earner’s plan that can cure any mortgage default and pay over time all disposable income to fund a Chapter 13 plan to unsecured creditors. The confirmation requirements set forth in USC 1329 (a)(4) require a proposed plan to provide a distribution of no less than a creditor would receive in a theoretical liquidation under Chapter 7. In many instances, debtors have fallen several months behind on their mortgage payments.
The decision whether to file a Chapter 7 or Chapter 13 is dictated by the need to cure several months of mortgage arrearages through the Chapter 13 plan. In cases where Chapter 7 is the chosen path and a dispute arises with the Chapter 7 trustee regarding the amount of equity in the property, I have been successful in negotiating creative settlements with time payments to the trustee to resolve these issues. In cases where only one of two spouses file Chapter 7, the non-filing spouse is presumptively entitled to half the equity in the property and the right of first refusal to match any offer that may be received by the trustee. In single debtor cases with jointly owned property, a trustee has no automatic right to sell the property unless they file an adversary proceeding under 11 U.S.C. §363(h) and meet a balancing test to show inter alia that the sale of the estate’s undivided interest in the property would realize less for the estate than the sale of the property free and clear of the interest of the co-owner.
In Chapter 13 cases, the trustees do not accept many of the internet based valuation methods for property such as Zillow. It may be necessary to prove that the equity calculation for the proposed distribution applies to the Bankruptcy Code by obtaining a formal appraisal of the property. Both Chapter 7 and Chapter 13 are designed to provide debtors a “fresh start” and fairly treat creditor interests. The determination of equity in a marital home or investment property prior to filing is critical to determining the proper chapter selected. Debtors must be aware that the trustees have an independent fiduciary duty to challenge that value in exercise of their business judgment.
In certain cases, debtors can enlist the help of friends or relatives to make a lump sum payment to a Chapter 7 trustee to resolve the issue of the amount of equity in their property. In cases where debtors have accumulated substantial non-exempt assets in IRAs and 401(k)s that are not property of the bankruptcy estate and do not affect a potential distribution to creditors, it may be advisable to take a hardship withdrawal if the client’s goal is to remain in the residence.
Is My Property, Including My Home, Exempt Under New Jersey Bankruptcy Law?
New Jersey has one of the most limited exemptions in the entire country. It is essentially a $3,000 general exemption and there is no specific exemption for anything to do with real estate or other property. For that reason, your home is not exempt under New Jersey bankruptcy law…Read More
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