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Maverick, Attorney
Category: Bankruptcy Law
Satisfied Customers: 5718
Experience:  20 years of professional experience
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I live in Texas. I understand that in a Chapter 7 bankruptcy,

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I live in Texas. I understand that in a Chapter 7 bankruptcy, I can reaffirm a debt if my lawyer and the trustee agree that the payments would not be a financial hardship. Let's say I own a rental property, with tenants who pay me rent. There is neither a positive nor negative cash flow...the rent just covers the monthly payment. There is say $20,000 in equity in the house. It is not my residence; not a homestead. Can I simply reaffirm the mortgage, thereby keeping the equity out of the hands of the court?
Submitted: 7 years ago.
Category: Bankruptcy Law
Expert:  Maverick replied 7 years ago.
When you file a chapter 7 bankruptcy, you are typically only entitled to keep exempt property. Anyhting over and above that is subject to being sold by the trustee to pay first the secured creditor and then the unsecured creditors. Here are the list of exemptions for Texas:

First take for example a State where the homestead exemption is say $15k (Texas is different in that it does not appear to have a monetary limit)and someone has 20k of equity in the home. Even in this homestead situation, a creditor could force a sale of the home and give 15k to the debtor and collect the remaining 5k to cover his claim.

It does not appear to me that there is an exemption that would apply to your rental home. So if there is equity there to be had, it is likely that a creditor/trustee could force the sale, give the mortgage holder his share and use the balance to pay creditors. In other words, you reaffirmation would not preclude a third party creditor or trustee from forcing a sale to get the proceeds.

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Customer: replied 7 years ago.
Thank you. I figured it would be too easy to shield money that way! Payment is on it's way to you.

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