Shedding Unproductive Assets

There are times when an asset seems more of a burden than a benefit.    This can occur when a business becomes distressed and stops maintaining and updating its assets.      It can also happen (and recently did happen) when assets lose significant value.    

A significant number of homeowners struggle at times with mortgage payments and related expenses.    Many were encouraged to enter into mortgages that were a reach for them on the assumption that income always increases (which, it obviously doesn’t).    Sometimes the expectations with respect to the cost of maintaining the home were unrealistic.    When a home loses so much value that there is no equity (the home is worth less than the amount pledged against it) many options cease to exist.    The Debtor cannot refinance or borrow additional monies against the home.   The Debtor cannot sell the home for enough to pay the mortgage (and cannot afford to pay to get rid of it).    The Debtor may be unable to rent the home for enough to pay the mortgage and related expenses for the home.    Some Debtors are almost forced out of their homes.    The home literally becomes a burden.     Often, the Debtors hopelessness is compounded by their inability to foresee the possibility of equity in the foreseeable future.    This can occur with respect the rental properties or properties purchased with the intention of selling at a profit (often after upgrades).      Debtors may need to relocate for job or family reasons and be unable to sell the property.    Bankruptcy can sometimes help.

A bankruptcy may be necessary to allow the Debtor to be rid of the home and its attendant debt.     There are a number of timing issues if it becomes apparent that a home is not affordable.     For instance, the Debtor may continue to be liable for homeowners assessments until a creditor forecloses on the property unless in a Chapter 13 bankruptcy case.    A Debtor may desire to retain the home long enough to save for rent, security deposits and other moving expenses (this can create an exemption issue).      An attorney can explain what liability might linger and how to determine the timing of filing a case.     There may be other factors which must affect the decision.

A business owner holding assets may also be able to use a bankruptcy case to get assets of the corporation liquidated where an owner cannot liquidate the assets properly or is concerned about liability in connection with how the assets are liquidated.   Or, the owner can obtain a determination that creditors are entitled to certain assets or he will be able to retain or dispose of assets as they see fit once a trustee has “abandoned” the property.    In some cases a trustee “abandons” property after determining that it is not of sufficient value to provide a significant return to creditors.     A trustee may spend a period of time attempting to sell an asset before abandoning it to owners.      A trustee can sell assets so that a purchaser can be free of the concern that other creditors can attempt to later claim the assets.    The trustee determines the terms of sale and those terms are approved by the Court as fair to the creditors.     Creditors can have input into terms of the sale and secured creditors must be paid.     (Often, a trustee will abandon property because a creditor already has a valid lien on the property).

The filing of a Chapter 7 case to help liquidate assets should only be considered after careful discussion with an attorney.    There can be liability for owners of small businesses in certain situations and this should be carefully considered.    There are also means to accomplish similar results in a state court liquidation that may be better depending on the circumstances.   This should be discussed with an attorney.