March 2010

23 Mar Chapter 11 May Be a Good Option for “Land Rich, Cash Poor” Clients

Recently, I've met with a number of clients with the same situation: In addition to their homes, they also own several pieces of investment property, some without any mortgages on them. As a result of the economy, they have had trouble with their tenants paying rent, and haven't been able to sell the properties. The resulting bad cash flow results in their burning through their savings, and falling behind on the mortgages on their homes. I usually get the call when they are facing foreclosure (which prompts our meeting). Most attorneys would first think that their case would be a typical Chapter 13--catch up the mortgage arrearages over time. The problem is that the poor cash flow would set a Chapter 13 case up for failure, since if the monthly mortgage and trustee payments couldn't be made, the case couldn't succeed. Are these people out of luck? No. The answer, surprisingly, may be a Chapter 11.
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