Has Stock Market Volatility And Increase In Mortgage Rates Led To An Increase In Bankruptcy Filings?

Mortgage modifications will be less common when there are mortgage loans at rates that are currently more than 5%.

When mortgage rates had diminished to the rate of 2.5% to 3%, many debtors were able to resolve this situation by seeking loan modifications and obtaining a new mortgage loan at a lower interest rate with an extended payment term.

Based on the current mortgage rates, a mortgage modification is going to be less likely to be remedied because the new rate may be more than the rate that they have at present.

The lower unemployment rate is another factor that would decrease bankruptcy filings. In fact, unemployment is a much more significant factor in potentially increasing bankruptcy filings than an increase in mortgage loan rates.

Does The Extension Of The Cares Act Allow Individuals Under 59 And A Half To Withdraw Funds Without A Penalty From IRAs And 401(k) Accounts?

Penalty-free withdrawals were not extended in the Cares Act. Anybody that didn’t try to take advantage of that benefit will not be able to access it in the future.

What Issues Arise When A Debtor Is A Co-Owner Of Real Estate With Their Spouse Or A Third Party And Only One Of The Property Owners Files For Bankruptcy?

One issue arises in that, during the valuation of the filing debtor’s interest in the real estate, the non-filing spouse loses interest.

Suppose a bankruptcy trustee stands in the shoes of the filing debtor and has a right to seek a sale of the interest of not only the filing party but the non-filing party if they can meet a test. The most significant aspect of that test is balancing the benefits and burdens to the non-filing spouse. It would have to be relief sought through an adversary proceeding in the bankruptcy court.

For individuals that have experienced some appreciation in real estate, the trustees are looking very carefully at the valuation of the real estate. They employ a balancing test of looking at the cost of sale, trustees commissions, realtors commissions, and other things, which should be added to the amount of the secured debt or mortgage debt against the property.

Only then do they consider the value of a one-half interest of the non-debtor spouse and the debtor’s exemptions and try to determine whether the sale of the property would ultimately result in a payment to unsecured creditors if allowed by the court.

Suppose A Debtor Has A Majority Interest In A LLC And Files An Individual Bankruptcy… Does A Chapter 7 Trustee Have The Legal Obligation To Manage The LLC?

As limited liability companies have become a preferred business. The assets of an LLC itself are not property and do not automatically become part of the member’s Chapter 7 estate. When one member of an LLC files for bankruptcy, the trustee will not try to become the manager of the property because the economic interest is an asset.

One issue that arises is where an LLC member’s interest has to be valued, and the LLC has assets and liabilities. If the LLC is liquidated, the assets would be sold, but we first used to pay a debt of the LLC. And if there were any remaining value, that value would have been distributed to pay the members’ creditors.

A trustee can’t ignore the LLC liabilities where the debtor has an entire or partial interest in an LLC. As mentioned, the membership interest is something that a trustee can liquidate. In many circumstances, the LLC member’s claim is exempted in whole or part based upon exemptions available under the bankruptcy code.

Liabilities of the LLC is a negotiation with the trustee, which may or may not result in a debtor attempting to buy back any LLC interest that the trustee holds as a result of the bankruptcy filing.

Get Information on the Volatile Stock Market & Rising Mortgage Rates, call Michael McLaughlin, LLC, for an initial consultation at (908) 373-8500, and get the legal answers you seek.