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How can I avoid bankruptcy with a $410K & growing deficiency judgement from commercial R/E short sale?

Tampa, FL |

I am 55 yrs old, former business owner & owned commercial rental properties & recently divorced & living with my parents until I get back on my feet; In 2007 this property was worth $1M when purchased and loan was at 50% loan to value and after best efforts to save from foreclosure failed in 2010, forced to short sale at $210K in 2011. Is bankruptcy the only answer? Or is there any hope this may go away or can be negotiated down?

Attorney Answers 3

Posted

It is hard to imagine why it would "go away". It is a valuable asset, and even if the owner of the deficiency claim were to go out of business or into bankruptcy, the receivable would be sold. There are lots of buyers for these things, primarily debt buyers.

As for negotiating it down, unless you develop some meaningful leverage, it is not likely to be reduced much. Once reduced to judgment, the claim has a potential life of 20 years.

Bankruptcy is the only CERTAIN answer. However, at such time as the deficiency claim is made, the claim may turn out to be legally defensible, and if you wage a good defense, you then develop some negotiating power.

I am defending several deficiency claims currently, and am finding numerous defenses. I have won two completely. However, there is no way to say today what defensive opportunities (if any) may present themselves when suit is filed, so that would have to be a "wait and see". The challenge is that there is a 5 year statute of limitations on making the claim, and so lots of time yet for the owner of the deficiency claim. If you are a good candidate for bankruptcy now, but don't file, and then 3 years from now the claim is made, you may no longer have a favorable bankruptcy profile, and therefore the bankruptcy option may no longer be there.

In addition, even if the creditor were to forgive the deficiency (not that I expect that would ever happen), you would be taxed on the entire amount forgiven as income, and then would owe lots of taxes on the $300 shortage. If you discharge the debt in bankruptcy, that problem should not affect you.

I would suggest you at least speak to a good bankruptcy attorney now, to get a sense of how your current situation would look in bankruptcy. Bankruptcy can be a miraculous solution.

Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is intended to be created hereby. You should contact a local attorney to discuss and to obtain legal advice.

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12 comments

Asker

Posted

Deficiency judgement was filed against me in 2011. I just cant see how I can let everything I do have (in storage) go and any money i have saved. They only will only let me keep $6K in cash or assets and only $1K of that $6K can be allocated to a car. At my age how will I save much of anything for the future?

Asker

Posted

As far as not qualifying later for Ch 7, I cant see how that would happen bc my assets would have to be greater than judgement no? I was wondering if I just let the judgement sit out there forever, I just can't buy any real estate, or be an employee (garnish wages), or save money in a bank (have right to suck out w/o notice); I guess I could only save money but not invest; On my own, I guess I could just rent the rest of my life but If I were to remarry that could be a problem if he wanted to buy. I was just wondering about the pros and cons.

Margery Ellen Golant

Margery Ellen Golant

Posted

It is obvoius from your responses that you need to discuss your situation with an experienced bankruptcy attorney. This is not a cut and dried proposition. When people attempt to strategize their own way through bankruptcy, they almost invariably miss importanmt options and strategies. There are various assets that are exempt, and so not counted in the totals. In addition, there may be even better options in Chapter 13, however, unless you speak to someone who knows this area of practice really well, you will not be able to see how you may be able to benefit from the possibilities. Your assumption that the only way not to qualify for bankruptcy is for yoru assets to bve greater than the judgment is incorrect. There are various ways a person can fail to qualify. You are also incorrect that you are likely to have the option to "let the judgment sit out there forever".Odds are extremely high that the creditor will sell the judgment to a debt buyer. They are aggressive and optimized to find assets. They can drag you to a "deposition in aid of execution" regularly and require you to testify under oath about your assets. Any non-exempt assets you have are up for grabs. It is difficult to imagine why living in hiding, not working, not buying any real estate or saving any money would be a more attractive alternative than filing bankruptcy. Do yourself a favor and consult an attorney. Most bankruptcy attorneys provide free nitial consultations. But make sure you see someone who is really knowledgable about Chapter 13 as well as Chapter 7. You might be pleasantly surprised.

Asker

Posted

Wow. I appreciate your comments were very informative ESPECIALLY about that deposition issue. I have been to BQ atty 3 times and backed out once & lost $500 bc he got tired of all the Q I asked and just wanted me to "get the show on the road". I didn't appreciate that just bc he does that for a living that my situation especially back then was way more complex than now. I later went to another atty and was much better; however, I stalled going forward. I have appt to go back on Tuesday. But I keep getting cold feet. I have always had stellar credit in the past and very responsible person. This is killing me. I want to sell my car & pay off loan bc I don't want to screw my credit union whom I've had a good relationship since 1972. My son has offered to give me his car but I will have to ask atty regarding timing. This is absolutely horrifying for me. I guess it only makes sense to go forward. Thank you ... you have been very helpful.

Margery Ellen Golant

Margery Ellen Golant

Posted

Make sure you see a good attorney, not one who only does cookie cutter cases. You do not have to "screw" your credit union - depending on the details, you can probably reaffirm that debt and keep the car. Ask the attorney. You appear to have a number of misperceptions that are making the options seem worse than they are. Make sure the attorney you see is really fluent in Chapter 13 as well as Chapter 7, because I suspect Chapter 13 might work better for you.

Asker

Posted

These attys seem to really know what they are doing. He did not recommend reaffirming the debt since one can predict the future, if something unforseen were to cause me to default on that loan, that debt will go against my credit. Yes I would very much like to keep my 06 Honda CRV but my son is offering me his 02 Honda Accord as a gift & urging me to eliminate all debts and start saving and building wealth over time. No atty has advised me Ch 13 for reorganization due to size of my debts. All have suggested Ch 7 & to include any business debts. A business BQ I was told would be $20K. They are charging me $1200 + $300 to file. Lower than most. They felt bad for me a year ago and will honor the same price now.

Asker

Posted

*can't

Michael Avanesian

Michael Avanesian

Posted

Always look for attorneys that do both Chapter 13 and 7; otherwise you only get half an answer.

Asker

Posted

I have been to 2 attys and first one claimed he did both but found out he only does Ch 7 and the last one I saw last year does both but recommended Ch 7 for me and to include any business debts too.

Asker

Posted

I'm not sure how Ch 13 would help me with such a huge deficiency judgement?

Margery Ellen Golant

Margery Ellen Golant

Posted

That is because you have not had a full explanation of how Chapter 13 works or how it might apply to your case. Many bankruptcy attorneys only do Chapter 7 and know nothing about how Chapter 13 works.And, like anything else, there are those people who just do the basics, and those who think outside the box. I don't know if Chapter 13 would provide a better result in your case than Chapter 7 because I do not have any understanding of all the details of your case. You cannot get case-specific legal advice from a web site - you need a complet4e analysis of your situation, including all your debts, your assets, the exemptions that would apply if you were to do a Chapter 7, what if any assets remain exposed, and whether a Chapter 13 would allow you to keep more of them.

Michael Avanesian

Michael Avanesian

Posted

For what it's worth, I completely agree with Ms. Golant.

Posted

It all depends on your disposable income and what assets you want to keep. From what I've read though, it looks like Chapter 7 works fine for you.

The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here. Please visit my web site: www.avanesianlaw.com for more information about my services.

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Margery Ellen Golant

Margery Ellen Golant

Posted

The issue here may be assets vs exemptions and the liquidation test.

Posted

It is not clear why you would want to avoid bankruptcy. It sounds like you should embrace it, especially for the avoidance of tax consequences.

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