Need some clarification on my discharge? PLEASE help!

[trader19]

Guys/gals,

Filed C7 and had 341 meeting in July. A few weeks after, we got a notice of assets about a rental property that I own 50% of. The rental property does generate income but has nearly no equity. We owe about $130,000 on the property and it was appraised for $140,000. My attorney sent over a copy to the trustee and is filing a motion to have this issue heard by a judge.

However, I just got a letter from the bankruptcy court stating that my debt is discharged. It says "the debtor is granted a discharge under section 727 of title 11, United States Code."

When I asked my attorney's assistant how I can have a discharge without the notice of assets being resolved yet... he said that I have been discharged but the case is not closed.

1. Can someone please clarify this for me?

2. With an income generating rental property with no equity, should I be worried about the notice of assets hearing?

Thanks for your help!

[AngelinaCat]

Congratulations on your Discharge, but I will refrain from sending you your Hamster Troupe just yet.

You need some help from someone like Justbroke, has been a landlord, for a better clarification. But you may or may not be ending up turning some of the rents over to the trustee, but again, perhaps not, since you were Discharged before being ruled an Asset case. The trustee may seek to have the Discharge revoked and give more time to your creditors to file objections to the discharge of their debt that you owe them.

In any case, your case will not Close, until all of the behind the scenes bookkeeping, and administrative details are handled. This hearing is one of them. Has it been scheduled yet?

I'm sorry I can't give you a better answer.

[despritfreya]

The entry of the discharge has nothing to do with the Trustee's administration of your case. The problem you have is that the Trustee owns the rental property, not you. He has the right to sell it and he has the right to collect the rents. He may elect to forego that right but it is his right nonetheless.

I tell my clients that any rents collected from the day the case is filed until the day the property is "abandoned" by the Trustee (if the Trustee abandons it) must be turned over to the Trustee. If my client wants to keep control over the property (and the rents) I never recommend a Chapter 7.

Since you are in a 7 I assume you did not want to keep the property therefore you should not be concerned over the asset - unless of course, you have been keeping the rents and the Trustee now wants those funds.

Des.

[justbroke]

I have nothing to add to what Des wrote.

[trader19]

Des,

I do want to keep the property because it does produce rents. we have the property in an llc. as i said before, i am a 50% owner of the llc. my question is.... if the trustee really wants the property, he can only get 50% of it, right? and how would he sell 50%??? and if wants the rents, i am certainly not going to do the significant work that is required just to turn the profits over to him. so, does he become a landlord? and if so, how does he work out duty arrangements with the other 50% owner. sounds like that would be a mess.

[despritfreya]

Sorry, I did not pick up on the LLC issue so the questions are as follows:

1. Was the property, when purchased, purchased with LLC money?
2. Was the property, when purchased, titled to the LLC?
3. If the property was purchased with LLC money, how much cash did you infuse into the LLC vs. how much cash the other member put in and when?
4. If there is a mortgage is the loan in the LLC name or in the name or names of the members?
5. What does the operating agreement say as it relates to profits generated by the property?

Just because the property is titled to an LLC does not mean it is out of the reach of the Trustee. All depends upon the circumstances behind the creation of the LLC, the amount of money a debtor transferred to the LLC and when the property was titled to the LLC.

When you filed the bk your Trustee replaced you as the 50% member. He now has all the rights you had as it relates to the entity plus the strong arm rights of a trustee to set aside transfers. Normally he will sell the membership interest either to you or the other member, but when there is a hard asset (such as income producing real property) he has other choices. If he can show that the property (or the cash to purchase the property) was transferred to the LLC without “valuable consideration” he could undo the whole thing. This may be why he has set a hearing to determine if there are assets.

If the Trustee filed some sort of Motion the Motion would explain what the issue is. Did he? Can you tell us the exact title of the Motion? Bottom line is you may not know what the story is until the hearing.

Des.