See a good accountant or tax strategist, not your franchise tax preparer. A bankruptcy is hard on the family. The court will require a #3 FAMILY plan to be approved, including a budget, which could be austere compared to your previous lifestyle. There will be emotional effects on parents and children.
is the rent?” And so on.) If it appears that the debtor cannot sustain the property, the judge will grant the relief requested. If there are multiple liens on the property, they all get relief at this time. TACTICAL FILINGS Some debtors file for bankruptcy as a tactic, to forestall a foreclosure, not intending to proceed entirely with the bankruptcy. A debtor is required to submit a plan to the court for approval within a certain period of time. If this is not done, the judge will promptly dismiss the case, and the debtor will lose the court’s protection from all creditors. This works for investors who have an imminent sale or refinance closing and need a short delay of foreclosure. Otherwise, it does not accomplish much.
Your reputation will
take a hit. There are too many possibilities to describe here, but there will be some. You and the others affected need to take these into consideration. It would be wise to develop a plan. HIRING ANATTORNEY You have the option of hiring an attorney or representing yourself. Read up on bankruptcy yourself and interview at least one law firm that specializes in bankruptcy. Make sure the firm emphasizes its bankruptcy practice, so it’s not a sideline with other types of law. You cannot use a “lightweight” lawyer or law firm. If your bankruptcy is small, you can file Chapter 13 or Chapter 7 (not discussed here).
CONSIDERATIONS There are considerations about filing bankruptcy. Here are several:
It will negatively
impact your credit for a matter of years if you file bankruptcy personally. If the assets you are trying to preserve are in an entity, you might be spared. You should have a sound asset protection plan in place. A single-party LLC is not enough. Get fortified thoroughly, and consult an attorney.
attorney is present and can interject to protect their client if a question is “out of bounds” in some way. “RELIEF FROM STAY” After the “Automatic Stay” period ends, secured creditors are allowed to petition for relief from the stay. Often, it is a first lender on real estate with plenty of “protective equity” and an attorney on staff who files. (It could be a vehicle or equipment lienholder who files, as well.) In the case of a personal residence, the judge usually encourages the parties to negotiate an arrangement that the court can approve. In the case of investment properties, the judge focuses on the debtor’s ability to make payments to the lender. (“Is it rented? How much
Perhaps you could represent yourself there. But, if the
stakes are high, and you have a lot to lose, hire a professional. There is life after bankruptcy. It is a viable option to help deal with tough times, and
afterward, you might come out better off because of it. •
#2 INCOME TAXES A foreclosure sale, although involuntary, is still a sale. Gains will be taxable. If you have conducted a progression of 1031 Tax-Deferred Exchanges, the gains calculation will go all the way back.
Bruce Kellogg has been a Realtor® and investor for 38 years. He has transacted about 800 properties in 12 California counties. These include 1-4 units, 5+
apartments, offices, mixed-use buildings, land, lots, mobile homes, cabins, and churches. Reach him at email@example.com or (408) 489-0131.
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