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Stop payments on rental properties but collect rent?

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woodstockaz

Junior Member
Arizona. I may have to file bankruptcy. I believe I need to stop all credit card and student loan payments. But, do I stop paying the 1st and 2nd mortgages on both my rental properties as well as HOA and continue to collect rent? Rent covers exactly mortgage and HOA, so no profit. 1st property is under water and I don't care if I lose it. 2nd property has little to no equity and I would prefer to keep it as I will probably need to move back in a year or 2 after the BK.
Any advice is much appreciated.
 

LdiJ

Senior Member
Arizona. I may have to file bankruptcy. I believe I need to stop all credit card and student loan payments. But, do I stop paying the 1st and 2nd mortgages on both my rental properties as well as HOA and continue to collect rent? Rent covers exactly mortgage and HOA, so no profit. 1st property is under water and I don't care if I lose it. 2nd property has little to no equity and I would prefer to keep it as I will probably need to move back in a year or 2 after the BK.
Any advice is much appreciated.
Those are good questions to ask your bankruptcy attorney. However, you generally should keep paying on anything you intend to reaffirm.
 

woodstockaz

Junior Member
Any other input from anyone?

I keep checking for replies. Since I don't yet have a lawyer I wanted to try to get some questions answered.
 
Just saw this. I hope OP is still reviewing responses.

1. Non exempt real property (your rentals) the minute you file bk belong to the bk estate.

If you file a Chapter 7 you completely lose control over the property AND the rents. All rents collected after the Chapter 7 is filed MUST be turned over to the Chapter 7 Trustee.

If you file Chapter 13 you keep control of the property and can continue to collect rents UNLESS the Deed of Trust contains an “assignment of rents” and you are behind in the mortgage payments . Look at the Deed of Trust. If there is an assignment and you are behind, you need permission from the lender to use the rents collect and those rents (cash collateral) need to be segregated from any other money. The lender must then approve paying anything from those rents and most likely will want every dime due to the default. If there is no assignment you can collect rents but must make the mortgage payments. The Chapter 13 Trustee is not going to allow you to keep the property unless the rent matches or exceeds the monthly cost to maintain the property (mortgage, taxes, insurance, HOA, upkeep etc.)

If your intent is to surrender the property in either Chapter once you file you should not collect rents. In the 7 the Trustee can demand payment. In the 13 you simply stop paying.

2. HOA fees owed prior to filing bk are dischargeable however, if your intent is to keep the property the delinquency is secured by the property and my have to be paid back or the HOA could attempt to foreclose - unlikely if you file a 7 a real possibility if you file a 13.

3. HOA fees owed AFTER filing bk are your responsibility regardless of your intent with the property. Until the property is out of your name you must pay the post petition HOA. See 11 USC 523(a)(16).

4. As to what you do prior to filing, such is up to you. While I do not condone this, many collect and pocket rents.

Hope this helps.

Des.
 

woodstockaz

Junior Member
Thank you. That was a very helpful response.

Question. If I would like to keep one of the properties and intend on moving back within a few years and I don't own the home I'm currently living in, how would I best go about keeping it? There is almost no equity in it. I would like to retain it as my only owned home while I'll still need to rent it out for a while.
 
If I would like to keep one of the properties and intend on moving back within a few years and I don't own the home I'm currently living in, how would I best go about keeping it? .
1. Don't file bk;

2. File Chapter 13 making sure the rental income meets or exceeds the cost of maintaining the home so the Trustee will not require you to surrender it. Your Chapter 13 Plan must provide for payment of whatever non-exempt equity there is in the property to your unsecured creditors; or

3. Move back in before filing bk and claim as your homestead - but it must truly be where you reside. No moving in a month before filing with the intent to move out after filing. No playing games.

Des.
 

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