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Make too much for Ch7. How to surrender underwater second home in FL. Will ch13 allow this?

Boynton Beach, FL |

I make too much to file chaper 7 in FL. I have an underwater townhouse I am renting out and a primary residence with $15K equity. The rent does not cover my expenses and I don't want to be a landlord. I owe $127K on the townhouse which would sell today for $40-$50K. I have never been late on either mortgage and my credit is good. I just want to get rid of the rental. What is the best approach?

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Attorney answers 6

Best Answer

As my colleagues indicated, you have many choices. Which is the best? I do not have a crystal ball and I am not g*d so in 5 years when you look back with 20-20 vision you will know whether you took the "best" route, a good route, or a bad route.

I too urge you to consult with a bankruptcy attorney to look at the figures to see if you qualify for a Chapter 7. The "means test" is used when your income exceeds the median income in Florida for a family of your size. When taking into account the permitted deductions from gross income, some one earning more than the median can still qualify for Chapter 7--and this is not to say you should go into a Chapter 7, just that you should run the numbers first so that your decision will be an informed decision. Such things as taxes, insurance premiums, charitable donations and a host of others when deducted from gross may permit you too file under 7.

Here is another thought, though: even though your rent does not cover the expense of the rental unit, a bankruptcy will have an adverse effect on your credit scores, which may translate into higher interest rates on car loans in the future and higher car insurance premiums. At least with depreciation on the rental you may not be as cash-negative as you think, and the loss from the rental helps offset your other income so as to reduce income taxes.

Clear as mud?

I would suggest that you consult with your tax professional to see what the $ for $ effect of having the rental property is actually costing you.

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You may not need to file for bankruptcy at all. Many lenders are working with people in your situation through short sales and deeds in lieu of foreclosure, which may have a lesser impact on your credit as well. To directly answer your question you may surrender the property in bankruptcy or perhaps strip liens against the property in a chapter 13. You should consult with an attorney to discuss short sale/deed in lieu along with your bankruptcy options.

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I wish I could say that I know the one & only solution, but you have a variety of options depending on how the numbers play out. You could go with a short sale, you could go with a Chapter 13 or you could qualify for a Chapter 7 even if you think you don't.

The devil is always in the details, so it would be worthwhile to consult the best bankruptcy attorney you can find in your community for a more specific explanation of your options.

Hope this perspective helps!


Don't be so sure about making too much to qualify for Chapter 7. The Means Test is quite complicated. For example, if you stop collecting rent on the "underwater" property, that income is no longer counted, but the mortgage payment is deducted.

If the underwater property is your only debt problem, then I agree with the other answers regarding a short-sale. Beware the potential tax consequences of a short-sale with debt forgiveness!

Posting questions anonymously and receiving general answers do not substitute for consulting with an attorney licensed to practice in the jurisdiction in which you live. Answers posted here by Kevin C Gleason are only intended for general education of the public on legal matters. Please consult a qualified professional before deciding what to do about your situation.


I agree with the other responses. You can see that you really should obtain a full consultation about your circumstances. Note that as discussed, you can be over the median income income of the state and still qualify for chapter 7 based on your allowed expenses. More information on the means test can be seen on my website.

The questions and answers posted on AVVO are for general information and should not be treated as legal advice or establishing an attorney-client relationship.


You have received some excellent answers from counsel on this question. I do recommend that you speak with a LOCAL Bankruptcy attorney before you take any action. Be certain to discuss the possible tax consequences of a short sale for the forgiven debt (difference between what bank gets versus what they are owed) as well as the potential liability for condominium/homeowners fees that accrue post bankruptcy filing if you chose the bankruptcy route.
Bruce C. Truesdale