Can I Collect Rent If I’m Surrendering Rental Properties in Bankruptcy?

Rental properties can be a great source of income until a renter moves without notice or fails to pay or that rental income starts to be used for your personal household expenses.  As situations arise, many people are finding it necessary to file bankruptcy and surrender a rental property or properties they own.  When you surrender a rental property in bankruptcy, you are in essence surrendering your interests and rights to the property.  Therefore, you are not allowed to continue to collect rent while in bankruptcy since you are no longer obligated to pay the mortgage payment (and likely are not continuing to pay the mortgage payment).

Foreclosure on Rental Property | Filing for Bankruptcy

Additionally, the bankruptcy Trustee will see this as unprotected funds and will request the received funds to go to the creditors.  Furthermore, tenants are always informed if a house is being surrendered in bankruptcy.  Your tenants may be well aware of their rights and have the responsibility to report a debtor who tries to collect rental income while in bankruptcy.

We encourage our clients to do one of two different things. One option is, the Debtors in the bankruptcy need to notify their tenant of the forthcoming bankruptcy and tell the tenant they will no longer be collecting rent and tell the tenant they should hold on to the money they would paying in rent and pay that money to the bankruptcy Trustee if they wish to continue to stay in the house. Another alternative would be to collect the rent money and put it in a new bank account and hold it in that account for the bankruptcy Trustee. It is important that you do not “commingle” collected rent with other bank accounts and it is important you do not start using the rent money for living expenses. Usually the easiest and most efficient way to handle a rental property is to notify the tenant and let them know they need to hang on to that money to pay it to the bankruptcy Trustee.

After your bankruptcy case has been discharged you have received a Final Decree that officially closes your case, you still should not collect rental income if you surrendered the property in your bankruptcy.

Am I Personally Responsible for the Taxes Owed On My Business?

The Internal Revenue Service (IRS) uses a basic logic that if you have any signing authority over the business bank account, then you can be held personally responsible for certain taxes owed by that business.  So, yes, if you own a business or part of a business, be prepared to pay certain accrued taxes. This is especially true if you have a sole proprietorship. Additionally, no matter what type of business you own or owned, you also need to be careful when it comes to taxes that you should have paid as an employer – for example, the necessary taxes you pay to the government for your employees (social security, etc.). These can later be assessed as “civil penalties” which you are personally responsible for, even if the business later dissolves.

Taxes Owed on Business | Filling Out Paperwork

The general rule when it comes to taxes is that the government – state or federal – almost always gets paid.

What if you have dissolved the company?  Unfortunately, dissolving a business will not eliminate any tax debt or liability.  Even filing bankruptcy will not take care of all taxes.  Generally speaking, the only time taxes may be wiped out in a bankruptcy is if they were filed three years prior to the bankruptcy filing date.  The civil penalties mentioned above are also taxes that you can be personally responsible for even if the business has been dissolved.

If you owe a large amount to the government for taxes and are having a hard time coming to terms for a payment plan with the IRS, you may want to look into filing a Chapter 13 bankruptcy, which is a structured repayment plan.  This will keep the penalties from accruing and enlarging your original balance owed.

If your business is still operational, you may look into reorganizing your business debt in a Chapter 11 bankruptcy.

The bottom line is that even though you can still be held personally responsible for certain business taxes, you are not limited to repaying your taxes outside of bankruptcy. Certain types of bankruptcy may actually be a better alternative for you when it comes to setting up a repayment plan.

What Should I Expect at a Workers’ Compensation Mediation?

In North Carolina, if a party to a workers’ compensation case, such as an injured worker or an employer/insurance company, has requested a hearing in front of the North Carolina Industrial Commission by filing a Form 33, a mediation is required by state law.  However, if an agreement or settlement is reached by all parties before the mediation, the mediation is not necessary. Sometimes, the parties agree to an informal mediation between themselves.

Workers' compensation questionsThe purpose of the mediation is for the parties to come together, with the assistance of an approved mediator, and try to settle the matter without the cost and expense of a formal hearing in front of a deputy commissioner, who is similar to a judge.

The mediation is usually in one of the attorney’s offices. Unless waived by the parties, all interested persons must attend the mediation.  The mediation is usually held in the county where the injury occurred. The mediator’s responsibility is to try to assist the parties to come to a compromised agreement between themselves that would “settle” the case. The mediator is usually an attorney with years of experience mediating cases. The mediator is an unbiased attorney who works for neither side and has no stake in the outcome of the case.  The mediator is usually paid on an hourly basis.  Currently the hourly rate for a mediator is usually $125-350 per hour.

One main purpose of the mediation is to determine through mediation what final settlement amount (known as a “clincher”) is to be paid to the injured worker as a full and final settlement of the claim.  The clincher is usually the goal of both parties. The mediation’s main purpose is to determine what that clincher dollar amount will be.

The mediation usually begins with the mediator bringing the injured worker, their attorney, and the employer/insurance company and their attorney into a room to discuss the merits of each party’s claim.  The attorney for the injured worker gives a small presentation about the injury and the medical cost, etc. Usually if the employer’s insurance company has accepted the injured worker’s claim, the exact medical cost and disability rating is an accepted fact by all parties.  Usually the medical cost has already been paid by the employer’s insurance company.

Next, the employer’s attorney will make a small statement about the injuries to the worker. The “compensation rate” of the employee is usually agreed to by the parties.

The mediator will divide the parties into separate rooms.  The mediator will go into each room and discuss the merits and weaknesses of each party’s case. Usually the injured worker will make the first initial dollar amount offer to “clinch” or settle the case. The mediator will usually take this offer to the employer/insurance company for consideration.  This amount is usually more that the employer is willing to pay.  The employer will counter with a lower offer. The mediator will present this offer to the injured worker.  No surprise, this amount is usually lower than the injured worker is willing to accept.  The mediator goes back and forth between the parties, adjusting the dollar amounts each party is willing to accept.  This may take several hours or several days.

Hopefully, each party will finally agree to a mutual dollar amount, somewhere in the middle, that each party can accept. It is normal for both parties to feel they have been treated unfairly and are paying too much or not being paid enough. The goal of mediation is to settle the matter.  Neither party will walk away completely happy, but both parties are usually concerned that if they do not settle the case during mediation, then they may do far worse at a hearing.  As the old saying goes, “a bird in the hand is worth two in the bush.”

Most mediations end with a clincher.  In the event the parties cannot come to a settlement at mediation, the mediator will declare an “impasse.”  At this time, unless the parties can come to a settlement later, a hearing will be scheduled before a deputy commissioner.  This is similar to a court trial. The deputy commissioner will make a decision on the merits of the case.