While many people who file for bankruptcy understand the basics of the process, people frequently have questions about how specific types of property are handled. If you own a rental house, property, or commercial unit, it is important to consider how these types of property will be affected if you file for bankruptcy.
Chapter 7 Bankruptcy and Rental Properties
When a person files for bankruptcy under Chapter 7, the individual is allowed to keep certain property that is classified as exempt. While there are certain exemptions that apply to a person’s home, these exemptions do not apply to other property that a person owns and does not use as a residence.
Because rental property is rarely classified as a bankruptcy exemption, the property is often capable of being sold and the proceeds distributed to creditors.
Trustees, however, almost always only take nonexempt property if the proceeds from the property will greatly exceed the costs associated with selling the property. This means that rental property might not be taken if there is little or no equity in the property.
In some cases, people who have a small amount of equity in a rental property are able to protect the property with a “wildcard” exemption that applies to any property. In the state of Florida, a person is allowed to claim up to $4,000 if the person does not take a homestead exemption. This wildcard amount increases to $8,000 for joint debtors in the state of Florida.
Rental Property and Chapter 13 Bankruptcy
When a person files for Chapter 13 bankruptcy, the individual is not required to give up any property. Instead, a person must use his or her income to repay some or all debts over a several-year repayment period. As a result, in Chapter 13 bankruptcy, a person is not at risk of having a rental property sold.
While a rental property will not be taken during Chapter 13 bankruptcy, the property can impact the bankruptcy process in a few ways. In some cases, a rental property might mean that a person is required to repay a larger portion of debt. This is because in Chapter 13 bankruptcy, the amount that a person is required to repay must be equal to the value of nonexempt property. If a person has significant equity in a rental property, he or she will likely be required to repay this amount to creditors.
A second way that rental property can affected Chapter 13 bankruptcy is that an individual is allowed to include any money that is owed (“arrears”) on a rental property in a Chapter 13 repayment plan. A rental property can sometimes lead to a person owing less in a repayment plan.
Speak with an Experienced Florida Bankruptcy Lawyer
If you own a rental property and are concerned about how it will be affected by bankruptcy, you should not hesitate to speak with an experienced bankruptcy attorney. Contact the Adam Law Group today for assistance.