Rental Property (House) 

If you have a rental house and are considering bankruptcy, you need to know, from a San Diego bankruptcy attorney, "Can I keep my rental home in bankruptcy?"   In most cases, the answer is yes, you will be able to keep your rental property. But because the bankruptcy courts are focused less on helping you save investment properties as opposed to saving your primary residence, your San Diego bankruptcy lawyer will need to show the Court that certain factors all point in your favor for you to keep a rental property.

How to Keep a Rental Home In Bankruptcy San Diego

Whether you can keep a rental home in bankruptcy San Diego, depends upon several factors:

1. Whether you have equity in your rental house;

2. Whether you are on time on your mortgage payments;

3. If you are behind, whether you are willing to repay your missed payments;

4. Whether your rental home is cash flow positive or cash flow negative; and 

5. A good faith test.

Do You Have Equity In Rental Home?

In order to keep a rental home in bankruptcy in San Diego, you cannot have more equity in your rental property than your bankruptcy exemptions allow.  For California residents, the applicable exemptions typically do not allow you to have much equity in a rental home.  Therefore, if you live in San Diego County, chances are that if you have a significant amount of equity in the rental property, then you will not be able to keep the property in bankruptcy.

On Time On Rental House Payments

If you are on time on your rental house payments, then you can usually keep the rental property in a Chapter 7 bankruptcy.  

In a Chapter 13 bankruptcy, you can propose to keep a rental house if your lawyer proposes a viable Chapter 13 plan that is approved by the Court.  You'll definitely need a Chapter 13 specialist. 

Behind On Rental Property Payments

In a Chapter 7 case, if you are behind on your payments on your rental property, then you may not be able to keep the rental in a Chapter 7 case.  It will be up to your lender's discretion whether it wants to foreclose on the rental property. 

In a Chapter 13 case, you can propose to keep your rental house if your lawyer proposes a viable Chapter 13 plan that is approved by the Court. You'll definitely need a Chapter 13 specialist.  In San Diego bankruptcy cases, whether or not you can keep a rental property will largely turn on whether the property is cash flow positive or cash flow negative and whether you are willing to pay the positive cash flow to the bankruptcy trustee. 

Cash Flow Positive Analysis – Chapter 13

In order to keep a rental home in a Chapter 13 bankruptcy in San Diego, you will need to establish that the property is cash flow positive and you will need to agree to pay part or all of the positive cash flow to your creditors, thus making it in the best interests of all of your creditors that you keep your rental in bankruptcy.

If your rental property is cash flow negative, then the San Diego Chapter 13 trustees will object to your case, and the trustees as well as the bankruptcy court will typically require you to propose in your Chapter 13 plan that you will give up the property.   The San Diego bankruptcy judges will generally view a cash flow negative property as a poor, money losing investment and will not condone your holding on to a rental property that loses money to the detriment of your creditors (who you could be paying more money to.)

Even if you propose to give up your rental home that is cash flow negative, the San Diego Chapter 13 trustees are likely to show disinterest in the property a cash flow negative property and cannot generate any money for your creditors.  Hence, notwithstanding that your Chapter 13 plan proposes to give up the rental property, you may ultimately get to exercise full control over it and rent it, sell it, or short sale it.

Good Faith Test

Good faith is always a consideration in any bankruptcy case because bankruptcy courts are both courts of law and courts of equity and as courts of equity tend to exercise their equitable powers to do what is fair and help the honest but unfortunate debtor. Your lawyer will need to show the Court that your decision to keep a rental property is in the best interest of your creditors.

The good faith test is frequently applied to a cash flow negative property and the effect of it often is that the Court will find that an honest debtor would not continue to pour money into a cash flow negative investment but instead would use that same money to repay some of his or her creditors.

Free Consultation

Contact Bankruptcy Legal Center today and talk to a San Diego bankruptcy attorney to learn whether you will be able to keep your rental house, and what it will take on your part to keep your rental property.