What Happens to Investment Real Estate in Bankruptcy?

It is a common question that comes to everyone's mind before filing for bankruptcy, and why not? It is about your property that you have worked hard to buy, so it is always good to stay informed beforehand. If this is one of the questions coming to your mind too, you are in the right place. We strive to educate and empower all our readers through these informative articles. But first, it is important to know more about investment real estate.

 

What Is Investment Real Estate or Rental Property?

Rental property refers to any property that is not personally used by the buyer. They are purchased by an investor and inhabited by the tenants usually on a lease or other form of the rental agreement. It is also known as investment real estate. This may be any type of real estate, residential or commercial, which can be leased out.

Now that we know the basics, without any further ado, let's head directly to the answers to some of the most important questions related to the bankruptcy process! The first one is what happens to your investment or rental property when you file for bankruptcy?

Well the short answer is - It all depends on whether you are filing for Chapter 7 or Chapter 13 bankruptcy. If you file for a Chapter 7 Bankruptcy then you may lose your rental property or investment real estate as part of the bankruptcy process. Similar laws are there for your residential house if you file for bankruptcy. This is where a good bankruptcy attorney would be able to help you. A more detailed answer to the same question is below. Let's find out!

 

Chapter 7 Bankruptcy and its Implications on Investment Real Estate (Property)

During the Chapter 7 bankruptcy process, a bankruptcy trustee mostly cancels your debts if not all. This is done through a liquidation process which means all of your assets and property will be liquidated to repay the lenders or creditors. This is why Chapter 7 bankruptcy is normally referred to as “straight” or “liquidation” bankruptcy. Under this type of bankruptcy process, even a homestead exemption does not protect any of the investment real estates. What this means is that your investment or rental property is subject to loosing during Chapter 7 bankruptcy proceedings.

 

Chapter 13 Bankruptcy and its Implications on Investment Real Estate (Property)

Now the good news is that with Chapter 13 bankruptcy, you may be able to successfully keep your property with you. This holds true for personal as well as your investment real estate and property. During this type of bankruptcy, you need to make some arrangements to repay a major portion of your debt, which is agreed upon during the bankruptcy proceeding, over a period of 3-5 years. This type of bankruptcy is also commonly known as “reorganization” bankruptcy because it lets you reorganize and re-structure your debt to eventually pay it all off. While it’s important to note that if you have an investment property then the income from it may increase the monthly payment which you are required to pay to the bankruptcy trustee.

 

Final World: The key here is to choose a trusted bankruptcy lawyer and work with him. We agree that bankruptcy laws can cause a lot of confusion. You might not be in a position to know which bankruptcy procedure would best fit your needs and requirements and hence seeking advice from a professional bankruptcy lawyer is always recommended. They will individually assess your situation and offer you unbiased consultation on which form of bankruptcy you should file. They are also fully equipped with subject matter expertise and thus are able to answer and clear all your doubts before filing for bankruptcy.