Can I Keep My Rental Property in a New York Bankruptcy?

Even small business owners and property owners run into financial trouble sometimes. Your rental property is a big investment and maybe even a big part of your income. Can you keep it?

Of course, the answer is, “it depends.”

Your rental property may be exempt.

In a Chapter 7 bankruptcy we can avoid having your rental property sold to pay off debts by proving that it is exempt under federal and state law. This will depend on how much equity you have in the property. You may also use the “wildcard” exemption to cover your rental property.

Keep in mind that if you have equity low enough to render your property exempt then you probably have a mortgage on it too. You’ll have to reaffirm the debt when your bankruptcy is discharged and continue making payments on the property if you want to keep it. 

One thing that might make Chapter 7 difficult is the fact that you are probably receiving funds from your rental property. This means that you might fail the Chapter 7 means test. 

Chapter 13 may be an option.

In Chapter 13 nobody loses property anyway. Your rental property payment would be part of your Chapter 13 plan. You’d pay on your plan every month and you’d keep your rental.

After the bankruptcy discharge you’d again have to start making regular monthly payments if you want to keep the rental property.

In some cases, you might be able to “cram down” your mortgage, reducing the amount you owe to the value of the property as it is on the day you file. 

You may need to restructure your rental business.

Long before you file for bankruptcy it may be wiser to make your rental assets separate from your personal assets by placing them in an LLC. You can then file Chapter 11 business bankruptcy if the bulk of your bills relate to your business bankruptcy.

The business itself would still be an asset vis a vis Chapter 7 or Chapter 13 and would still need to be taken into account. In addition you won’t want to make these moves right before filing, as that could impact your case. 

Get help from a qualified bankruptcy attorney. 

Bankruptcy is complicated. It’s even more complicated when you own a business.

Don’t let the complication of bankruptcy lead you to lose your discharge. Contact us to get answers to your most pressing questions and to get guidance on how to solve your unique financial situation.

See also:

Can I Buy or Sell a House During a New York Bankruptcy

How to Choose the Right Bankruptcy Chapter

What is it Like to Declare Bankruptcy? 


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