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cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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Chapter 7 Bankruptcy Question I have 4 rental properties

Customer Question

Chapter 7 Bankruptcy Question: "I have 4 rental properties that are under-water with over -$300,000 of negative equity, and have -$3,000 per month negative cash flows. Additionally, I have approximately -$135,000 of debt on my Credit Cards that have a $2,100 minimum payment required. My plan is to Chapter 7 shortly.
Issue: While I pass the “means test”, I am concerned that for the Oct 2010 to May 2011 period I used the rental checks (approximately $6,000) to supplement my Pension ($1,200/mo) and our combined Social Security ($2,900/mo) to live on versus withdrawing $6,000 from my IRA as I previously had been doing.
Question: What is the likelihood that the Trustee will not approve my Chapter 7 because I did not pay more of my creditors with the rent checks and instead used the majority of the money to live on?

Note: For Oct – May six month period I began to prepare for the June 2011 filing by:
1. I stopped paying the mortgages on the 4 rental properties in October 2010.
2. I stopped paying the minimum payment required on the credit cards in October 2010.
3. I did continued making payments on my home mortgage and also on both cars. All are current.
4. I have no other secured or un-secured creditors.
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 6 years ago.
Hi JACustomer,
You will not be penalized because you did not use the rent money to pay the mortgages, and instead used the money for living expenses. It does not matter that you could have used your pension money instead.
As a matter of fact, if you pay too much to any one creditor before a Bankruptcy is filed, the Bankrutpcy trustee can make the creditor return the money, so that it can be evenly distributed to all creditors.

I think this is what you wanted to know. If not, please let me know.
Thank you!
cfortunato and other Bankruptcy Law Specialists are ready to help you
Customer: replied 6 years ago.
Follow up: If the Trustee in my 341 meeting does ask my question to you...what would be a good reply?
Expert:  cfortunato replied 6 years ago.

The trustee might ask you what you did with the money, since you did not use it to pay the mortgage. You would have to answer honestly - that you used to money to live on instead of using money from your IRA. Basically, the trustee would want to know if you still have the money, as he might then be able to take some of it.

If you have spent it on everyday expenses (not on luxury items), that would be the end of the inquiry.