Chapter 7 Speedbump

[Vandervecken]

I've hit an interesting speedbump in my Chapter 7. My attorney is out of town due to a personal emergency, so I thought I would post the issue here for any ideas or comments.

I own a rental house that has positive, non-exempt equity. I cannot surrender it to the trustee for two reasons:

1. My ex-wife is on the mortgage. She has no ownership interest, but the divorce agreement specifically states I cannot damage her credit.
2. The rental house is next door to my own house. My mother is in her 80s, and in the next couple of years will need to move in next door to me for assistance.

So the plan had always been to redeem the equity in the house. Here's where it gets interesting: my mother owns a second mortgage on the house, since she loaned money for it's repairs a few years ago. It is recorded with the county clerk and I have made payments on it for years.

Yesterday, the trustee sent an email to my attorney: he found a technical glitch in the legal language of the mortgage and he believes it was not perfected correctly. So the amount to redeem just shot up and the trustee wants much more money. Honestly, I can do it, I just wonder what is the best route:

Option 1 - ask my attorney to fight the trustee. This will drag the case out a lot longer, and cost money. I don't know the odds of winning and I hate throwing good money after bad.

Option 2 - come to an agreement with the trustee and redeem the equity.

This is where my questions begin. Am I correct in assuming this:

Option 2A :

• We agree to the valuation and write a check.
• The trustee abandons the house.
• My mother's lien stays intact but with possible defective language.
• After the case closes, my mother files correcting paperwork.

Or would this be the course of action:

Option 2B - almost the same as above but:

• The trustee makes a motion with the court to invalidate my mother's lien. My mother becomes an unsecured creditor.
• We agree to the valuation and write a check.
• The trustee abandons the house.
• My mother files a claim against the bankruptcy estate like any other unsecured creditor. But does she become an insider and unable to file a claim?

Obviously I'm trying to turn lemons into some kind of lemonade here, but within the scope of the law.

Thanks, everybody!

[justbroke]

I wouldn't want to give you any advice on this except that, if you trust your attorney, to follow their guidance. Lean upon that attorney as a trusted advisor. Personally, I like to fight... so... that's me. Of course you should always have your "out" (your best alternative to a negotiated agreement, or BATNA). I think your so-called BATNA is option 2B.

[despritfreya]

Does not matter how you settle with the Trustee. The fact that there is now a "controversy" means one of two things:

1. You settle with the Chapter 7 Trustee for a sum certain and the Trustee files and notices out a Rule 9019 Compromise Settlement Motion or

2. You are unable to agree on a dollar amount you can afford and discuss with your attorney if you can convert to a Chapter 13. this potential option is not really desirable.

Please note that because there is now a legitimate controversy, the Trustee no longer needs to feel obliged to put the property up for auction to obtain the highest and best offer. He can now settle the controversy which allows you to avoid the risk that you could be outbid (if such a risk ever existed).

Des.

[Vandervecken]

Thanks, JB and Des!

I have a very good lawyer, she only does bankruptcy and is known through several districts. I've thought about the conversion, but a Chapter 13 is not the best option for me for a lot of reasons. I would rather just get it over with and free myself up to rebuild. I have the exempt resources to redeem the equity so going with Des' #1 is the plan.

Thanks again everybody!