A Silver Lining for Underwater Property Owners: The Bankruptcy Attorney’s Perspective on Underwater Property

Sinking piggy bank in the water.

For many submerged in debts, bankruptcy can feel like a gloomy storm cloud. Yet, there’s a silver lining for those who own underwater properties – the bankruptcy trustee isn’t interested in them. While this may be surprising, the trustee’s motivation is fundamentally clear-cut: they seek assets that can be swiftly converted into cash to benefit the creditors. Naturally, this does not include properties whose value is essentially balanced out by the outstanding loan.

Keep reading to learn more about how bankruptcy could help you if you are underwater on your mortgage. Then contact Law Offices of Terrence Fantauzzi at (909) 552-1238 to request a free bankruptcy consultation.

The Crucial Question: Will the Property Be Sold?

A prevalent concern revolves around rental properties. Their loan values were equivalent to the current market values of these properties. Despite this, owners hold onto the belief that the long-term value of these properties would appreciate significantly. Their primary fear? That filing for Chapter 7 bankruptcy would compel them to relinquish these potentially lucrative assets. This fear, while understandable, is not rooted in the realities of bankruptcy law.

Deciphering the Role of a Chapter 7 Trustee

A pivotal aspect of the bankruptcy process is understanding the duties of the trustee. In a Chapter 7 bankruptcy, the trustee is tasked with converting the non-exempt assets of the debtor into cash, the proceeds of which are used to repay the creditors. The trustee is laser-focused on immediate, tangible gains. Hence, when examining any asset, they pose the following queries:

  • How much is the asset currently worth in its existing state?
  • How much would the trustee have to spend to maintain the property until its eventual sale?
  • What are the estimated costs associated with selling this asset?
  • What, if any, are the tax implications that arise from the sale?

The trustee’s guidance is quite transparent in its intent. Assets should only be administered if the trustee is confident of making a substantial payout to the creditors. With a predefined minimum amount deemed worthy of pursuing, each trustee has a threshold. Considering these criteria, it’s quite plausible that those with properties that match their loan values can complete their Chapter 7 bankruptcy proceedings without losing ownership of these assets. After all, the associated costs, potential tax complications, and the proceeds from any sales might just balance each other out.

The Underlying Challenge with Real Estate Post-Bankruptcy

Bankruptcy laws adhere to a foundational principle: liens remain unaffected by bankruptcy proceedings. This means that after navigating the Chapter 7 process, my clients will retain ownership of their rental properties. However, these properties will continue to be burdened by loans equivalent to their market value. It’s crucial to note that the risk of foreclosure looms if they default on their mortgage repayments.

Yet, there’s a refreshing assurance amidst this complexity: the bankruptcy trustee won’t divest them of these properties simply because they embarked on the bankruptcy route. This perspective not only allays many fears but also empowers property owners with a clearer understanding of their rights and positions in a bankruptcy scenario.

For any further queries or assistance regarding bankruptcy and its implications on property, feel free to contact Law Offices of Terrence Fantauzzi at (909) 552-1238. Our team is here to provide clarity and guidance every step of the way.

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