Rental properties are becoming a more common asset for the typical American. Rental properties generate a steady source of income, while allowing the owner to retain the property for investment purposes. When a bankruptcy petitioner seeks relief from overwhelming debt, they face the difficult fact that the homestead exemption only applies to their main, primary residence. Additional houses and properties are counted as assets and are surrendered during bankruptcy. If you are a rental property owner and you are considering filing for bankruptcy, you might wonder when you are required to stop collecting rent.
Can a Bankruptcy Petitioner Still Collect Rent on Surrendered Properties?
Difficult situations arise constantly, and many rental property owners find themselves facing a difficult decision: to file bankruptcy or not to file bankruptcy. If you are considering this particular choice, you should probably hear the details about rent collection on surrendered properties before you make your final decision. When you file bankruptcy, you surrender the extra properties (rental properties) and the mortgages that come along with the properties. When you surrender a property, you surrender your interests and rights in the property, so you no longer have the right to collect rent.
If rent is received during the bankruptcy proceedings, the bankruptcy trustee will define them as unprotected funds. The unprotected funds will be directed to go to your creditors. Additionally, tenants of surrendered properties are informed when a property they are renting is surrendered in bankruptcy. Tenants who are aware of their rights and bankruptcy law, may feel responsible for reporting it if a petitioner attempts to collect rent on a surrendered property during bankruptcy.
What To Do If You Own Rental Property & You Are Declaring Bankruptcy:
If you are a rental property owner and you are declaring bankruptcy, stop collecting rent when you decide to file. The tenants in the home, if they would like to stay, will instead pay rent to the bankruptcy trustee for the duration of the case. By handling the transition in this way, you will avoid any situation that could negatively affect your bankruptcy case.
If you are a rental property owner and you need to discuss filing for bankruptcy, we can help. Trust the experienced Tennessee and Georgia bankruptcy attorneys at Kenneth C. Rannick P.C. We help good people through bad times every day, and we can help you, too.