When you file for either chapter 7 or chapter 13 bankruptcy, you’ll likely have many questions about how it will impact your assets. For example, rental properties are often treated differently than primary residences. Use the guide below to know what to expect and how to decide which type of debt relief is right for you regarding your rentals.

Guide to Rental Properties & Filing for Bankruptcy

Chapter 7 Bankruptcy

Under chapter 7, you can keep properties exempt under state or federal law. In the state of Hawaii, you can choose whether you would like the exemptions allowed under state or federal law. However, these exemptions typically only apply to your primary residence, not your rental properties.

The trustee, or person appointed to handle all the financial affairs of your case, can take the property and sell it if they believe the proceeds are worthwhile. This will involve doing a cost-benefit analysis comparing the costs in seizing and selling the property versus the amount of equity you have in it. If they determine you have enough equity to make selling the home worthwhile, the proceeds will go to the mortgage holder since they have the biggest claim to the property’s value.  

The entire chapter 7 process lasts four to six months, after which you will be able to discharge your unsecured debts. It’s an excellent choice for those who are deep in debt and can’t repay their unsecured debts over time.

Chapter 13 Bankruptcy

All of your property is protected in a chapter 13 bankruptcy, including rentals, so the trustee cannot take and sell it. You will instead be required to use your income to repay debts over a repayment period of three to five years. 

You are only eligible to file under chapter 13 if you can repay your creditors at least the value of your equity in the property. If your creditors could get more value by selling the property under Chapter 7, then you are required to take that route. Chapter 13 is therefore a good choice if you have enough financial security to become current on debts like mortgages and car loans.

Greg Dunn, Bankruptcy and Debt Relief Attorney will help you find the best way to clear away your debt and start fresh in Honolulu, HI, whether that’s through chapter 7 or chapter 13 bankruptcy. As a native of Oahu, this bankruptcy lawyer has worked on over 12,000 cases since 1996. Contact him online or at (808) 524-4529 to schedule a free consultation.