Friends...this is a recent case decided in Illinois. I've had more than a few clients over the past couple of years who've wanted to do the same thing. Bottom line is that there are more interested parties involved in a bankruptcy case than just the debtors who file the case. Plus, while they are somewhat limited...creditors have certain rights too. Trying to hang on to a real estate investment that isn't contributing to cash flow and is actually a detriment simply is not something that works in a bankruptcy situation. No reason why these folks should have thought they could subsidize an investment property on the backs of their creditors. That money should have gone into paying back the debt they accrued. I don't know if they had an attorney but if they had I don't know what he/she was thinking if they were involved in any proposed reaffirmation agreement of this sort. If you want to keep property....it's got to be income producing and adding to your bottom line...it can't be a drag on your resources.
In re Lorenca,(Bkrtcy.N.D.Ill.)
Debtors' attempt/intention to reaffirm debt on investment property on which they were losing money warranted dismissal of their Chapter 7 Bankruptcy case.
These folks were, as many others have found themselves of late...caught in a falling real estate market. The were unable to sell their old home profitably. As a consequence they rented it for $482 less than what they were paying as expenses associated with the mortgage(s) and other costs of maintaining the property. With the proposed reaffirmation they attempted to retain this old home at unsecured creditors' expense in the hopes that the real estate market would bounce back and that they could sell the property at profit should the market turn around. All the while they were also paying $5,132.79 per month as a mortgage, property taxes and insurance expense associated with their new home. Their failure to allow this former residence to go into foreclosure which would have allowed $482.00 monthly for payment to unsecured creditors led the court to dismiss their Chapter 7 case as abusive based on the totality of circumstances.