Real Estate in Bankruptcy
Debtors who find themselves in a position of having to file for Bankruptcy relief often times own either commercial or residential properties and in some cases both. Many small business owners own the commercial space they operated their small business from. Many Debtors have a piece of residential homestead property that has been their family home for many years. Some Debtors may own multiple residential properties or even income producing rental properties.
Cincinnati Real Estate in a Consumer Bankruptcy
Steiden Law Offices has substantial experience in counseling both residential and commercial property owners through Chapters 7 Bankruptcies in Northern Kentucky and the Greater Cincinnati areas. Whether the Debtor’s goal is to retain or surrender the property, or even modify the loan, your experienced counsel can advise you in structuring a plan to achieve your goal and with sound and prudent guidance, keep you fully apprised through the unfamiliar and complicated process of your Bankruptcy.
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Valuation of Real Estate
The Bankruptcy Code does have a provision regarding the value of property which the Debtors may retain through the Bankruptcy process. This area of Bankruptcy law is complicated as it includes a mixture and consideration of both State Law and Federal Laws.
The determination of value of real property differs depending on which Chapter is filed. In a Chapter 7 liquidation Bankruptcy, property is generally valued at a liquidation or ‘quick sale’ value standard. In a Chapter 13 Wage Earner Reorganization, real property is valued as an on-going concern or at Fair Market Value. Fair Market Value is generally considered to be the price a willing Seller would sell to a willing Buyer.
Exemptions for Real Property
The Bankruptcy Code does not as a matter of policy have a specific code section which prohibits the retention of any type of real property, either commercial or residential, throughout the Bankruptcy process. Under the Bankruptcy Code, a parcel of real property (residential or commercial) is considered to be either Exempt or Non-Exempt. A piece of property is exempt because of what it is (i.e. Homestead) or it is Exempt because of its net value (equity) after deduction for any liens or claims against the property.
Real Estate Documents
During the intake process, Counsel will pay special attention to your real estate ownership interests. The real estate documents will address the character of the property, the amount of mortgage debt attached to the property, the legal description and the specific identity of the lawful owners. During the intake process a discussion and decision will be made whether the Debtors wish to retain or surrender the property.
Counsel may request copies of a deed, a mortgage billing statement and maybe even the current tax bill so the property’s value may be determined. As a general rule, a Debtor can retain Exempt Property and a Bankruptcy Trustee will Take Non-Exempt property from the Debtor and administer it for the benefit of the Creditors.
Real Estate in Chapter 13
If during the intake process it is determined that the Debtor has sufficient equity in a property which exceeds allowable Exemption amounts that they wish to retain, Counsel will likely recommend the filing of a Chapter 13 Bankruptcy. In Chapter 13, the non-exempt property will not be taken by the Bankruptcy Trustee. Instead the Debtor will have to adjust the Chapter 13 Plan payments to cover the amount of Non-Exempt Equity in the property and those sums will be paid to the Bankruptcy Trustee to be paid to creditors as part of the Chapter 13 case.
Real Estate in Chapter 7
If the property has equity, it will not be exempt based upon its value. Depending on the amount of net equity, the Debtor may be able to retain it because of the character of the property within certain dollar value limitations. Homestead Exemption is a complicated issue because it is an issue which involves selection of either State Law Exemptions, and in Kentucky, a choice between the rather stingy Homestead Exemption and the more generous Federal Homestead Exemption amounts
Ohio Homestead Exemption
In Ohio, each Debtor who owns and resides in Homestead Property can Exempt the first $125,000.00 in equity and retain the homestead. If there are Husband and Wife Joint Debtors, the amount is doubled to $250,000.00 of equity. If the Debtors have more equity than that, the surplus amount would be considered to be non-exempt.
Debtors who have this amount of equity may want to consider a Chapter 13 Bankruptcy where they can pay an amount equal to the non-exempt excess equity into their Chapter 13 Plan and retain the homestead property. Ohio residents are limited to their own State Law exemptions.
Kentucky Homestead Exemption
In Kentucky, the Homestead Exemption is very limited. Each Kentucky resident may only exempt up to $5,000.00 in homestead equity. In some cases, a Kentucky Debtor is able to elect to use a set of established Federal Exemptions instead of their State’s Homestead exemptions.
This process is known as ‘opting out’ of State Law Exemptions. Federal Homestead Exemptions protects as exempt, equity up to $22,975.00 on homestead property for each Debtor. Only certain enumerated states are entitled to elect between State and Federal Exemptions.
Disputes as to Valuation
In many cases where there is real estate in the Bankruptcy, its valuation is disputed between the Debtor and the Bankruptcy Trustee. Generally the Debtor’s position is that the property is worth a lesser amount so as to allow it to fit in as exempt. Often times the Bankruptcy Trustee asserts a higher value which would make it non-exempt.
If the Debtor wishes to retain the property as exempt, Counsel may engage the services of a Realtor or a Certified Appraiser to determine and establish the value which may be disputed between Counsel and the Bankruptcy Trustee. Counsel may use this dispute to engage in negotiations regarding the value of, surrender or retention of the real estate. During the intake process our attorneys will discuss your real intentions and desires regarding your real estate ownership in great detail.
Surrender of Real Estate
Many Debtors are ‘under water’ or have very little or even negative equity in their property and as part of their Fresh Start, may seek to surrender the property to the secured lender (the Mortgage Company) and receive a full and complete Discharge from the debts associated with the property including the first and any second mortgages, condominium association fees and unpaid property taxes.
Foreclosure after Bankruptcy
In Bankruptcy cases where the Debtor decides to surrender a parcel of real estate, often times the property may be conveyed or deeded to the mortgage company. Your lawyer can make contact with your secured lender and negotiate the terms of a transfer to avoid a foreclosure. This transfer is typically referred to as a Deed in Lieu of Foreclosure. There are situations where a Deed in Lieu is not possible because of other mortgages or claims on the property.
Oftentimes, the foreclosure by the lender takes place well after the Discharge and closure of the bankruptcy case. The foreclosure is an action to recover clear legal title to the property. Because your Bankruptcy case is already discharged, you have no financial liability to the lender and the foreclosure is considered an in rem action. This means that the foreclosure is only against the property itself and seeks no financial compensation or damages from you.
Finding the Best Bankruptcy Attorney to Assist With Real Estate Matters
Bankruptcy involves issues from a wide variety of legal areas so you need a seasoned, experienced and well trained lawyer familiar with the nuances and interplay of those topics. Steiden Law Offices has a well-established and respected law practice proudly serving residents in the Northern Kentucky and Greater Cincinnati areas for 25 years.