chapter 7 - Posted by Frank

Posted by JT-IN on September 16, 2003 at 09:02:37:


“What about the fact that it’s an arms-length transaction?”

The Debtor still has no right to circumvent collection action, or protection of existing Creditors ability to recover from his existing equity. The look-back privision allows the BK Judge to set aside a sale that gave priority in payment, or treated a Creditor unfairly, and that would be the case here… Essentially the Debtor is giving away equity in order to keep a Creditor from pursuing it.

“Would anything change if the seller agreed to take nothing?”


“homeowner exemption”…

Except that when the home sells, there is no more Homestead exception. This would only apply if he filed, continued to own the home, then the Bk was discharged… along with all debts, then he sold the property.

“perhaps the investor could contact the trustee about purchasing the property?”

Yes, except that there is currently NO Trustee, as the Seller has not yet filed, the way I understood this. If he had already filed, and the case has progressed beyond the 341 meeting, (meeiting of creditors), then yes, contacting the Trustee with a proposal for a sale is the way to handle this. Although the Trustee would never ever approve a purchase at 50% of FMV… nor would he allow the seller to be pocketing money ahead of Creditors, except to the extent of any Homestead exemptions… as you mentioned.


chapter 7 - Posted by Frank

Posted by Frank on September 15, 2003 at 19:45:02:

If i purchase a property (about 50%LTV) and the owner files chapter 7 a few weeks later, can they come undo the deal? He would get about 5k from the sale which he says he will put towards the 30k of debt he has. Then ch. 7 the rest.

Re: chapter 7 - Posted by JT-IN

Posted by JT-IN on September 15, 2003 at 20:20:55:


The BK Trustee will void this sale faster than a NY second… If you know for sure the Owner is planning on filing for BK, stay away from this… unless you get the Trustee to sign off on any deal… Which they won’t do with that amount of equity left over.

This is a train-wreck waiting to happen, and I would not be near the track when it happens. That means stay away from the deal…


PS. Just a little rationale as to why this exists the way it exists. Let’s say that Frank is an unsecured creditor of this Debtor, the Seller/Owner. They owe you say 10K… and decide to pull a fast one and sell the house for lots less than it is worth, then just file on whatever is left over… Hence, Frank get zilch. Do you think that this would be ok for the Debtor to pocket some cash on a quick sale, while your rights as a Creditor are completly violated…? Of course not, and this is why there is a look-back period that exists when a Debtor files Bk, into any asset that has been sold within the past 90 days, 1 year, and sometimes longer… largely depending upon the circumstances of the situation… Debt vs. Equity.

Hope this clarifies it somewhat…

One more thing here… A Bk Judge is a Federal Judge and they have the power to overide any P&S Agreement that you, I or any other party writes, that ties into a Bk filing.

Re: chapter 7 - Posted by DavidV

Posted by DavidV on September 16, 2003 at 17:58:47:

Hi JT. Is there anything you don’t know. :slight_smile: :slight_smile: If someone did this, then the sale was overturned, how would that work between the bank (assuming a loan) and the buyer? I assume the judge would order the property to be deeded back and seller to refund the profit to buyer. And since irrespsonible seller blew any profit buyer would be SOL?

Re: chapter 7 - Posted by rm

Posted by rm on September 16, 2003 at 08:14:40:

What about the fact that it’s an arms-length transaction?

Would anything change if the seller agreed to take nothing?

The one thing the post does not mention is the state where this property is located. Perhaps the homeowner exemption would allow a 10-30k margin.

Another idea: perhaps the investor could contact the trustee about purchasing the property?

Don’t know the answer… - Posted by JT-IN

Posted by JT-IN on September 16, 2003 at 20:37:36:


How have you been…? Still getting the airplanes up and down, in equal numbers I see…

Yes, your question/example would be a messy one. The biggest challenge to a case like that would be to put Humpty Dumpty back together again. Sometimes it just doesn’t work as it should…

As with many things discussed here on the cre board, we are talking theory… and in the real world results can certainly vary… Just about like those disclaimers on late night infomercials…

Stay well DavidV…