Collecting rents while filing for bankruptcy
I hired a management company to rent my condo. Once I file bankruptcy (7 or 13) Is the contract nullified between the company and myself. The company has signed a rental agreement with a renter is that contract now nullified also?
I want to continue collecting rent during this process. What is "lien stripping" can this be an option to keeping my property? Are all contracts void when filing a 13 or a 7. The company has a rental agreement with the renter.
Lets go over this part by part. 1. Not all contracts are voided
Lets go over this part by part.
1. Not all contracts are voided automatically by filing bankruptcy. If there is an ipso facto clause in the contract which clearly state that the contract stands to be terminated if either party files for bankruptcy, only then it will be. Otherwise, the contract remains in effect.
Now in case of Chapter 13, contracts might be voided or altered by the trustee as per the requirement of the debtor, wholly for the benefit of the debtor. In case of liquidation during Chapter 7, contractual obligations might be voided in favor of the debtor (so as to release the debtor from any financial liability which may have been born from the breach of any contractual clauses).
2. Lien stripping really does not apply to your situation unless you are paying a mortgage on the rented property or on your residential property.
You really need to discuss these issues with an attny as the inf
You really need to discuss these issues with an attny as the information posted above does not address the issues you raised and what I am about to state (with the exception of the very next paragraph) is general in nature.
If you file a Chapter 7 you CANNOT collect rents post petition as the property (and the rents it generates) does not belong to you. Any rent you do collect you MUST turnover to the Trustee. Failure to abide by this rule will result in the loss of your discharge.
If you file a Chapter 13 (or 11) you can continue to collect rents as you continue to control all of the assets of the bk estate.
The contract with the management company is "executory" in nature and if not assumed within 120 days of filing bk (7/11/13) will be deemed rejected. If you file a 13 or 11 and do not want to utilize the management company you simply reject the contract and, if any money is owed, it is include in the bk.
Any lease that is entered into prior to filing bk is an "unexpired lease" and, once again, if not assumed within 120 days is deemed rejected. If you file a 7 the Trustee will either assume or reject the lease. If you file a 13 or 11 you will either assume or reject. If you are attempting to keep the property (13/11) you probably want to assume it unless the rental income is substantially below what the market can bear. If not assumed you will simply have a month-to-month tenancy.
Lien stripping deals with getting rid of a wholly unsecured junior mortgage against the property. If you only have 1 mortgage against the property you would not be lien stripping, HOWEVER, as this is rental property, if you file a 13 or 11 you can do a "cram down" of the lien. You can force the lender to reduce the balance of its secured claim to the value of the property. There are problems with doing this in both chapters (would take too long to explain) but, since initial consultations are usually free, you should discuss the cram down option with an attny in your local area.
If you wish to keep the property (13 or 11) you will need to show that there is a positive cash flow - that the property is "necessary for an effective reorganization".
Bottom line, if you file a 7 the rents go to the Trustee. If you file a 13 or 11 you can keep the rents and will be subject to certain conditions relating to how the mortgage against the property is treated.
Des.