Bankruptcy, Foreclosure, COD Income, Retirement

[BulldogTom]

Hi all,

I will be looking this up later today but thought I would pass it by you all for some comments before I start researching.

My client owns several properties in his Sch. C business (he kept saying he was going to form a corp). The homes are used as group homes/halfway houses for individuals placed by the county. Mortgaged and refinanced several times. Same story for his personal residence. Long story short - bankruptcy and foreclosure on all properties including his personal residence.

The client does have a significant retirement fund in IRA's and spouse has a state retirement and an IRA. When looking at insolvency to escape cancellation of debt income, how do you value the retirement accounts?

Like I said, I will be researching this weekend, but was just looking for some guidance before I get started.

Thanks in advance.

Tom

Lodi, CA

[joanmcq]

Well, IRAs are easy; FMV on date of cancellation. I'm not sure if accounts that cannot be liquidated, ie a defined benefit pension, are counted towards insolvency.

[jainen]

>>insolvency to escape cancellation of debt income<<

Insolvency is not relevant when the debts are discharged in bankruptcy. He may have other issues, however--a basis adjustment may trigger capital gains. Also the referee may not let him walk away if he still has substantial assets, especially if the lenders can show he did not act in good faith by pulling out equity prior to filing the BK.

[BulldogTom]

The issue is they are possibly going to try and keep some of the properties and make another go at the business. So the bankruptcy may not cover all assets. That is where the COD might take place in a workout on some properties and BK on others. It is a mess, and I am trying to figure out what their options are. They are meeting with the BK attorney next week. Like all clients, they don't put the whole team together (attorney, bookkeeper, tax preparer) and go through a complete plan, they talk to one and tell the others, or not.

The money from the re-fi's went into the business mostly. Re-fi one to keep up the payments on the rest. They don't live a lavish lifestyle from what I have seen.

We will see what they come up with.

Thanks for your input

Tom

Lodi, CA

[jainen]

>>So the bankruptcy may not cover all assets.<<

I don't understand how that works. If I were a lender, I would object mightily to a plan that extinguished my debt while letting the debtor keep the assets he bought with my money.

[BulldogTom]

>>So the bankruptcy may not cover all assets.<<

I don't understand how that works. If I were a lender, I would object mightily to a plan that extinguished my debt while letting the debtor keep the assets he bought with my money.

Like I said, this is coming from the client, and I am not sure what the attorney actually said to them. I am just trying to be ready for when my client drops an impossible situation on me about April 1, 2009.

I smell a big retainer and tax prep fee. Of course they will need the tax return in a hurry to get the BK or foreclosures done. Extra speed equals extra fees, and if they are going to consider BK, it means up front payment.

Tom

Lodi, CA