- If you are filing for bankruptcy and own a rental property in which you have equity, you will have a difficult time keeping the home. Most states do not provide exemptions for equity in rental properties, although some state and federal exemptions may allow you to apply other unused exemptions. You will have to continue to pay on your mortgage as you did before bankruptcy to keep the property.
- If you are a landlord without equity in the property, you may have a better chance at keeping your property. Of course, you will have to continue to pay on your mortgage as if you didn't file, but if you are expecting property values to increase, this may be a good idea. If you are upside down and do not expect property values to increase quickly, you may wish to cut your losses and allow the lender to foreclose while you discharge the deficiency balance on the mortgage in bankruptcy.
- Real estate can be owned in a self-directed IRA. IRA assets are exempt from inclusion in the bankruptcy estate, which means that the trustee cannot take them to liquidate and pay creditors. If you have made a decision to hold rental real estate in a self-directed IRA, the trustee should not be able to take the property.
- If you have rental property and are filing for bankruptcy, you may want to use an experienced bankruptcy attorney. Leases may be assumed or assigned by the trustee as deemed appropriate. If you are going to lose your rental property in the bankruptcy, you may have to turn over to the trustee for distribution any rents that you collect after you file. If you are going to keep your property, you may be able to keep the rents for the maintenance of the property. The outcome depends on your particular situation.
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