Most people assume that bankruptcy means giving up everything, and this assumption also includes rental property. Will bankruptcy cause you to lose rental property that you own? Not necessarily. Each bankruptcy case is different and there are a number of factors that will determine whether you can keep your property or if it must be surrendered to the bankruptcy trustee and liquidated. The factors include the type of bankruptcy you have filed, whether this is a chapter 7 case or a chapter 13 case, how much money is still owed on the property in question, how much equity you have in the property, and the rental income that the property provides as well as other factors.
Chapter 7 bankruptcy is a common type chosen for consumers, and this type of bankruptcy normally eliminates most if not all debts completely. With a chapter 7 bankruptcy you are allowed a primary residence equity exemption, and the exemption amount depends on the state of residence. Any rental property that you own will not count as your primary residence though and will not fall under the standard exemption for your main home. You are also allowed a Wildcard exemption but this is not much and the specific amount of the exemption is also determined by your state of residence. In Ohio the amount of this exemption is $21,625 per individual filing for bankruptcy. This is doubled in a joint case.
What if your equity in the rental property is nil or very low? Then it is up to the Chapter 7 bankruptcy trustee to determine whether the rental property could bring in money to pay off your creditors and debts. The trustee is not trying to take everything from you, but to look out for the best interests of your creditors. The trustee will calculate the value of the property, the cost of selling the property, and the amount that may be gained for your creditors. If you owe $100,000 on the property and the value is $99,000 then it is very unlikely the trustee will take the time and effort needed to liquidate this asset because little if anything will be recovered for your creditors after all of the expenses are determined.
If you file for chapter 13 bankruptcy then the situation can become more complex. Usually a chapter 13 filing reorganizes your debts and allows you to pay them off over time. Most rental property can be kept under this type of bankruptcy, and you may even be eligible for a cramdown. This is a method that is not allowed with any primary residence but that can be used with other secured debts and this includes rental property. A cramdown allows the bankruptcy judge to change the terms of the current mortgage to reflect the current value of the rental property rather than the purchase price you agreed to pay when buying the rental property. The judge can order a cramdown and this will lower your total debt and monthly payments in most cases.
If your rental property has costs then any costs must be evaluated by the trustee. The total cost of the rental property will be assessed including the amount of the mortgage payment, insurance, taxes, repairs, maintenance, and upkeep. If the total costs of the rental property exceed the income that this property provides then the trustee in your case may object to the repayment plan you are proposing. The trustee may take this step if you end up paying money out for the rental property in excess of the income provided by the property. The trustee may reason that these expenses could be better used to pay off unsecured creditors in your case. If this happens then you may be forced to surrender your rental property.
Rental property is an issue that can change from one bankruptcy case to the next, and whether you can keep this property will depend on all of the facts in your specific case. If you own rental property and you are considering bankruptcy you need an experienced bankruptcy lawyer who understands the laws and can help. The bankruptcy attorneys at Richard West Law can help provide a free debt consolidation consultation to help you find the right answer for your unique debt problems and circumstances. Visit https://www.debtfreeohio.com or call (513)771-8700 or (937)748-1749 to get the answers you want, and the financial relief you are looking for.