Bankruptcy-Opportunity of a lifetime - Posted by Fred-PA

Real Estate Investing Real Estate Law
1

Posted by Harold Whiteley on April 24, 2002 at 11:46:48:

I would trod very carefully. Bankruptcy Courts are not in the business of helping the person or company filing bankruptcy, but more to safeguard the deemed assets involved in the filing. Creditors line up, with all the BIG BOYS first in line and we pee wees lined up behind them.

I was a manufactuer OEM representative (contracted sales/marketing agent) and I had 7 reps under me in my 9 state territory when my OEM (original equipment manufacturer) filed for Chapter 11, then on to Chapter 13, then finally Chapter 7 (total liquidation). YIPPES!!! I was owed $250K in back sales commissions and designer royalities fees. I never got a dime, with all the large banks and private investors in line ahead of me. By the time they got to us pee wees, the money vault was bone dry!!

You need to touch base with a bankruptcy lawyer on this one, for sure if you decide to proactively proceed with your friend.
Be careful of the “boom-a-rang effect” and don’t let this deal, (if you decide to proceed ahead) come back to bite you in the hinny!!
Good luck.
With warm regards,
Harold L. Whiteley
Lewisville, TX
(DFW-Metro-Area)

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Bankruptcy-Opportunity of a lifetime - Posted by Fred-PA

Posted by Fred-PA on April 24, 2002 at 08:11:57:

I know of a property owner(a friend of mine and I handle his taxes) that has ran into some serious cash flow problems. He is facing Chapter 13. I had an idea that I could purchase some of his properties that he has little to no mortgage on at know more than 50-60% LTV. That way, we have a win-win situation. For example, he has a house that is worth $60K and he only owes maybe $10K on it. I would offer to buy it for 30K. He gets roughly about 20K, and I get a property with some decent equity and at least $150 a month in positive cash flow. I have a private lender that we give me money at 10% interest for 1 year. I would use his money for about 6-8 months and refinance through myself(I am a mortgage originator) and pay him off.

Questions:
When you are in Chapter 13, can you sell any of the properties that are included in the chapter 13 filing?

Questions:

3

Not only can’t he sell . . . - Posted by JoeKaiser

Posted by JoeKaiser on April 24, 2002 at 12:04:04:

He doesn’t even get to collect the rents. Generally speaking, EVERYTHING he owns comes under the umbrella of the “bankruptcy estate,” under which he has little or no control.

Joe

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Bankruptcy-Court MUST approve all sales… - Posted by David Krulac

Posted by David Krulac on April 24, 2002 at 09:36:02:

and will want to see sales at or near fair market value. Plus if the sales are BEFORE the BK filing the court can “look back” and negate a sale done previous to bankruptcy but in anticipation of bankruptcy for less than market value!

David Krulac
Central Pennsylvania

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IF HE DOES NOT HAVE TO FILE - Posted by Bob(CO)

Posted by Bob(CO) on April 24, 2002 at 09:07:54:

If you can keep your friend out of bankruptcy then you have a legitimate purchase and it certainly would be a win-win for both of you. I agree with JT and Phil that if he is in bankruptcy or will still file then you should stay away.

6

Dancing on some hot coals… - Posted by JT-IN

Posted by JT-IN on April 24, 2002 at 08:29:31:

Or playing with fire, might be a better strategy, than what you propose here.

Fred:

Bankruptcy laws are in place to protect both the debtor and the creditor. In the instance of what you are proposing here, the laws would protect the creditor, as you are suggesting that you would wisk away this friends equity, out of the reach of the other creditors. What if you were a creditor of his, would you want to have your position weekend in such a manner… ? Didn’t think so.

Therefore, when an individual or business is in bankruptcy, all asset sales must be approved by the BK Trustee. Likewise, to avoid dumping of assets, or an unfavorable transfer of assets at the last minute, just prior to BK filing, there is a “One year look-back period”, to avoid this very thing from happening. In other words, the appointed Trustee of the case, could invalidate a transfer of any asset, (such as these properties), up to one year prior to the filing of a BK.

Tread very lightly here, as you could be asking for more trouble than you can handle. Most of the time when this happens, it is due to the greed factor, of which, my “greed detector” alarm is going off full balst, at this very moment… as it evaluates what your plan is attempting to accomplish.

Take another look at this before you act, and run it by a local BK Atty before putting yourself squarely in the middle of a pythons grasp…

Just the way that I view things…

JT-IN

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Re: Bankruptcy-Opportunity of a lifetime - Posted by phil fernandez

Posted by phil fernandez on April 24, 2002 at 08:22:59:

The Bankruptcy Court will have a say in all matters. If there are other creditors involved in the bankruptcy, and there usually are, the Court is not going to allow your guy to sell way below market value. The Court will want close to fair market value so there will be money to give to the other creditors so your plan probably won’t work.

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Re: Dancing on some hot coals… - Posted by Redline

Posted by Redline on April 24, 2002 at 11:43:55:

In actuality, I’ve been told by two different bankruptcy attorneys in NJ that the “lookback window” can actually be up to 4 years, circumstances permitting. (whatever they are).

RL