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Mark:
In that case, list the property for sale immediately since the NOD has not even been filed yet and you know you still have a little bit more than 90 days to sell. Your clients may want to price it BELOW market value and try to get a quick sale. If the property doesn't sell within the timeframe possible, file Chapter 7 the last minute and take the homestead exemption.
If it does sell, they can still file Chapter 7 later and will have 6 months to reinvest the homestead amount in another residence. After the sale, however, looking for a new home should be their top priority and not be in a hurry to file Chapter 7 or settle with creditors. If filing the Chapter 7 is inevitable, waiting to file the case for as long as possible should also give you a little time to do a little bit of CCP 704 exemption planning with the rest of the proceeds (may not be much but at least whatever they can- I'm thinking of things like cash-value type life insurance policies, cemetery plots, perhaps tools of the trade?- if they are starting over after this failed business?)
I would still look into the possibility of settlement, though, with the largest creditors. I had a situation like this just recently and my client just came out of a divorce with over $130,000 in credit card debts. She only had $50,000 in cash available. I was able to settle almost all of the debts at an average of 35-50%. If your clients net $156,000 after the homestead exemption as you stated, it seems like this would be a sufficient amount for debt settlement purposes.
Of course, if debt settlement does work, possible tax liability on the debts cancelled may be another issue and I am sure you would be putting that in your retainer agreement and that you would refer them to a tax professional for advice.
Good luck.
Sent: Monday, January 24, 2005 11:17 PM
To: cdcbaa@yahoogroups.com
Subject: re: [cdcbaa] Debtor receiving exempt amount of liquidated real property
Sorry, I should given the numbers. House is worth about $525,000; liens/mtgs: $293,000. Equity$231,000 ($156,000 after homestead exemption). There's no way the Trustee's going to abandon it. Unsecured debts are close to $300,000, primarily credit card for failed business. They are going to need the $75,000 to assist in moving to new premises, so the delay could be significant, and this surcharge that David mentioned would be really "unfortunate". Thus, I posited the idea of them selling prior to filing. I doubt they could settle with credit card creditors for enough to save any of the nonexempt proceeds from the sale (as that would be about 50% of the debt which is pretty much the MAX you can settle for and that would have to be ALL the creditors agreeing). So a Ch. 7 after would be much simpler and quicker.
To: cdcbaa@yahoogroups.com
Cc: bklawr@bklaw.com
Sent: Monday, January 24, 2005 11:01 PM
Subject: RE: [cdcbaa] Debtor receiving exempt amount of liquidated real property
It looks like there are 2 possibilities here: (1) Trustee may be interested in liquidating residence if there remains a significant surplus after debtors are allowed the $75,000 homestead exemption, in which case the foreclosure will be stayed by the BK, creditor eventually gets paid off and your client walks away with $75,000 (although it may take a while to receive)- BUT ULTIMATELY, AN APPARENT WIN-WIN SITUATION FOR EVERYONE or (2) Trustee abandons the property after Chapter 7 case is filed because there is no surplus for creditors after the homestead exemption is allowed debtors.
In the first scenario, your client at least has a chance to walk away with $75,000 . In the second one, your clients will lose their property, anyway, in the foreclosure (unless Chapter 13 is a possibility) and get nothing from the residence.
Thus, it seems like choosing the better course of action depends on the current market value of the property. If the estimated amount of equity in the property is such that the trustee is likely to abandon the residence, then, yes, it would make more sense for your clients to try to sell the house on their own WHILE THERE IS TIME and not file Bk at all. After the sale, how about using the proceeds to settle with creditors for cents on the dollar?
Just my thoughts.
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The post was migrated from Yahoo.