Rental Property in Bankruptcy
What happens to rental property in bankruptcy, like most facets of bankruptcy law, depends on whether you file Chapter 7 bankruptcy or Chapter 13 bankruptcy. Furthermore, the state in which you file bankruptcy, the amount of debt you have, and the amount of equity you have in all your properties will affect what happens to the rental property that you own when you file for bankruptcy protection.
Rental Property in Chapter 7 Bankruptcy
When you file for chapter 7 bankruptcy protection and own rental property, the bankruptcy trustee will take over any property you own that isn’t exempted. Exemption amounts differ between each state and whether you are able to choose federal exemptions instead. In most cases of California bankruptcies, real estate you own that isn’t your permanent residence is more difficult to exempt and that might lead to it being sold to pay back your creditors. If you have little equity, however, you may be able to protect your rental property in chapter 7 bankruptcy by using a wildcard exemption which can be used to protect assets up to a certain dollar amount. Due to the fact that there are several exemption options in most cases, ask your bankruptcy attorney which set of exemptions would be best to use in order to protect your rental property in chapter 7 bankruptcy.
Rental Property in Chapter 13 Bankruptcy
When filing for Chapter 13 bankruptcy protection, the trustee usually won’t sell your nonexempt property, but the amount of equity you have in each property will factor into the total amount you must pay back through your Chapter 13 repayment plan. If you own rental property, there are a few benefits to filing chapter 13 bankruptcy versus chapter 7 which include getting to keep your property, in addition to, being able to add any missed payments into the repayment plan and pay them back over the course of your three to five year repayment period. Additionally, if you owe more than the rental property is worth, you may be able to decrease the overall repayment amount through a bankruptcy process called a “cram down”.
Bankruptcy is often a complex process and one that you certainly shouldn’t try to navigate on your own. If you own rental property that you want to retain during the course of filing for bankruptcy protection, contact an experienced bankruptcy attorney in Antelope to discuss your situation. A bankruptcy lawyer’s assistance and knowledge are invaluable and could represent the difference in being able to preserve your rental property and other assets.