Will I Lose the Rental Property I Own If I File For Bankruptcy?
Will I Lose the Rental Property I Own If I File For Bankruptcy?
by Peter Orville, Attorney at Law
You may or may not lose your rental property if you file bankruptcy. The two most important issues are whether the property is producing a positive income and whether the property has any equity, as well as which chapter of bankruptcy you file.
Maintaining a rental property is not without its costs. At a minimum, normal expenses include mortgage payments, taxes, insurance, and costs of repair and upkeep. If these costs exceed the income from the monthly rents collected, then the property is running in the red – it is losing money each month. If your rental property shows a net loss each month, a Chapter 13 Trustee is likely to object to any plan that includes your keeping the property. This is because the Trustee believes that the money you are losing each month on the property is actually disposable income that should be paid into your Chapter 13 plan for the benefit of your creditors.
The issue of equity has far more relevance in a Chapter 7 bankruptcy context. Even if the rental property is producing a positive income, if the property is worth more than is owed to a mortgage or taxes, a Chapter 7 Trustee will likely determine that the equity in the property is property of the bankruptcy estate. The Trustee is likely to take the property, sell it, and distribute the net proceeds to your creditors. By way of example, assume that you own a rental property worth $70,000.00, with a mortgage on it of $50,000.00. In this circumstance, the property has $20,000.00 of equity in it. The trustee will sell the property, pay off the mortgage of $50,000.00 and distribute the remaining $20,000.00 on a pro rata basis to your other creditors.
If you have rental property, before filing for bankruptcy you should discuss your options with an experienced and knowledgeable bankruptcy attorney.
Bankruptcy and Collectibles … What Can You Keep?
By: Susanne Robicsek, North Carolina Bankruptcy Attorney
Many Chapter 7 bankruptcy debtors worry that they will loose all their belonging, including their “valuable collectibles”. Depending on how you look at it, many debtors turn out to be lucky because they get to keep their collections. That is because most collectibles have little resale value and fall within the allowed exemptions in bankruptcy. Many of my clients are worried when they report that they have very expensive collections of baskets, figurines, gnomes, paintings and other collectibles. For those individuals hoping to be able to retire from the sale of their collection, they usually get a rude awakening. But for my clients that collected simply because they appreciated the items, they are relieved to know that they get to keep their beloved collection.
Whether it is Hummels, Longaberger, Thomas Kincaid, or other well known collectibles, these items are often mass produced for many years so that the secondary markets don’t result in high returns. And don’t even fret about those Beanies Babies since you might be lucky to get $1.00-$2.00 for them, and I have never seen a trustee take one! Many Chapter 7 bankruptcy trustees are simply not interested in selling these items off. In an article 5 Completely Worthless Collectibles (The Street) by Jason Notte the author explored the failure of many collectibles to pay off as investments.
Chapter 7 trustees are charged with looking into the debtor’s assets and gathering up property that exceeds the debtor’s exemptions. He/she will sell non-exempt property to apply towards the debts, but the trustee also has to consider how much it will cost to administer a bankruptcy case. Many trustees won’t attempt to distribute funds to creditors unless they can cover their costs and give a dividend to the creditors. The cost of administration alone is normally around $1,000.00 so many trustees look for at least that much, plus enough to give at least a little something to creditors.
If someone does have valuable items, it they fall within the applicable state exemptions then the debtor gets to keep them. If they have more than allowed, the debtor gets to choose which of their items they claim as exempt. They may be able to work out a deal with a Chapter 7 trustee to buy back the items from the estate if the debtor has the ability to get the funds to do so. Alternatively, a Chapter 13 case might protect those items from creditors and allow debtors the opportunity to make payments over a period of up to five years to keep the valuables.
So if you are considering bankruptcy and are worried about your collectibles, first get an clear idea of what the true resale values are and then consult an experienced attorney to determine if your state’s exemptions protect them.
