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Ask Andrea Ray Your Own Question
Andrea Ray
Andrea Ray, Attorney
Category: Bankruptcy Law
Satisfied Customers: 82
Experience:  Over 5 years experience in consumer and commercial bankruptcy law, Chapters 7 13 and 11
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Should I file bankruptcy

Customer Question

I have 5 rental properties that have negative equity and no cash flow. I make around $110,000 and have perfect credit but properties are straining me financially and mentally. I need an exit strategy. I cannot sell due to negative equity. Should I let them go into foreclosure and file a chapter 13 bankruptcy? I do not need credit for home or car loans.
Submitted: 8 years ago.
Category: Bankruptcy Law
Expert:  Andrea Ray replied 8 years ago.
How long will you not need your credit? Bankruptcy can stay on your credit report for 10 years. A couple suggestions:

It may be possible to talk your lenders into a "short sale" where you sell the property for less than what's owed and the bank accepts it as payment in full. There are companies out there that assist with this process.

Also, depending on the values of these properties and the other assets you may have, you may have to file for Chapter 11 instead of Chapter 13, which involves more cost to you.
Customer: replied 8 years ago.

I wouldn't need a car loan or mortgage for at least 5 years. Short sale is not an option. One, that ruins your credit almost as much as a bankruptcy. Second, I have perfect credit and high income. Bank is not going to agree to a short sale until I am way behind on my payments in which case my credit will already be destroyed. With my income I have been told I would have to file 13 (repayment). My question is really, what are the likely outcomes? How much can the banks really come after me for? I don't care about ruining my credit. I just want to know how much the banks can get me for.

Expert:  Andrea Ray replied 8 years ago.
Well if you're wanting to let them foreclose and file Chapter 13, the answer depends on how much you pay into your Chapter 13 Plan. You would likely be required to pay your "disposable income," that is your income less reasonable and necessary expenses, into a Plan for 5 years. If you have properties that are not cash flowing, the trustee will make you give them back to the creditors to foreclose on them. Any remaining balance left after they sell them would be an unsecured claim in your bankruptcy, which would receive pro rata distributions from your plan.

Once you complete your Chapter 13 Plan you receive a discharge, so they couldn't come after you for anything else after the plan is complete.