I am filing a chapter 7. What happens to the home I am renting out?

It depends on a lot.

In a chapter 13, if we have a rental property, we can list that mortgage amount, show the rental income, and propose keeping the property so long as the rental income is pretty close to covering the mortgage payment each month.

In a chapter 7, the bankruptcy trustee may decide that the rental income is property of the estate, and then he will start intercepting that income.  He should use it to pay the mortgage on the rental, but he may not.  This means that you may keep collecting rent, but instead of paying off the mortgage, it goes to the trustee until the mortgage company gets fed up and decides to foreclose their interest.

The Utah bankruptcy lawyer’s forum recently dealt with this issue, and to be honest, it’s still up in the air.  One attorney nicely put that:

There are standard form Trust Deeds which contain a specific paragraph 8 Assignment of Rents which is used by Key Bank. There are other standard forms used by most of the credit unions which has a paragraph immediately following the address legal description portion of a Trust Deed with language of “Together with all improvements now or hereafter erected on the property, and all easements, rights, appurtenances and rents (subject however to the rights and authorities given herein to Lender to collect and apply such rents), all of which shall be deemed to be and remain a part of the property secured by this Deed of Trust.

Which means that sometimes, the trustee will use it to pay the mortgage and sometimes not.

So an honest answer is that I don’t know, but there is a good chance that you’ll lose the rental.

This is not legal advice.  If you need help go to www.robertspaynelaw.com.

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