chapter 7 and out of state rental

[Drazil65]

We have our first consult with attorney this week after spending months trying to stay above water (choosing between food on the table and paying creditors) while spouse is back in school full time to change careers (2 lay offs in 10 months between 2009 and 2010 after 20 years in the same business put us in crisis mode and had to make decision to get out of business totally). We have been able to stay afloat for the last year on one salary (mine) and of course used cc to supplement. Thought we were doing the right thing by making sure our creditors were paid , also had to take out private student loans for spouses school expenses as he already has 4 year degree from 25 years ago so no go on any government grants or help. We live in NC (moved here almost 5 years ago for his job) from Ohio where we left our house and rented it out. We have been fortunate in that the same tenant has been there with no issues, rent covers the 1st and 2nd mtg but we pay the HOA fees each month. We are about 20,000 upside down on mtg there and want to surrender property in the chapter 7. Does anyone know how this works with out of state property? We also have home here and we are on a loan mod since June 2010 and are not sure what we want to do with this one. Of course this is on the top of our questions list for the attorney but wondered if anyone else experienced this issue? Thanks for any help offered!

[HHM]

There are no special issues with out of state property. It is an asset, so you do basic asset analysis.
1. How much is it worth, or how much equity is in it (sounds like zero)
2. Is the asset exempt, since you don't live in it, no, (but with no equity it isn't worth anything to unsecured creditors)
As a rental property, the income generated counts toward your means test, but you may back out for the mortgage on the rental property.

Since you want to surrender, no big deal, just stop making payments, nature will run its course (i.e. foreclosure).

[angles]

Fairly strait forward as mentioned above. You just let it go and let it run its course.

On the positive side the loss - or 1099 issued by the bank for their loss in the property will not count against you. Nice not to be taxed for phantom income.

One thing to talk to your attorney about is the possibility of turning over the rents after you file. In your petition you will state that you will not keep the property, stop making payments, yet it will have rental income. This may be viewed as an asset by the Trustee. I think there was a long thread on this subject not too long ago. Regardless, talk to your attorney about it so that you know what to expect.