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.
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