6 Reasons Not to Rent Underwater Property While in Bankruptcy in Las Vegas | Haines & Krieger

Most Las Vegas bankruptcy cases involve people with few assets beyond a house, car(s), and credit card debt. True, those types of cases can be tricky, but aside from nuances, the situation is fairly straightforward. Other petitioners, though, have more assets, which leads to more complex dispositions. For example, some people will own commercial or residential properties that they normal rent out to tenants. Often these days, the properties are underwater, and the petitioner lists them on a Chapter 7 petition as an asset with no equity in it but states an intention to reaffirm the mortgage. A reaffirmation agreement allows the debtor to promise the creditor that he or she will continue to pay the mortgage, so it is taken out of the bankruptcy estate.

After filing and the meeting of the creditors, the debtor may want to rent out the property, here’s why he or she should not:

(1)  The property is part of the bankruptcy estate, meaning the debtor does not have the authority to enter into lease agreements with potential debtors.

(2)  Consequently, even if the debtor could lease the space out, the income would go straight to the Trustee to be distributed among the creditors.

(3)  As far as the mortgage and reaffirmation agreement is concerned, the automatic stay allows the debtor to cease making payments on the mortgage until the bankruptcy case is concluded.

(4)  The Trustee does not have a deadline for deciding to pursue an asset. This means that he or she could decide to sell it if a tenant takes possession.

(5)  The petitioner, or any other interested party such as the lender on the mortgage agreement who desires a reaffirmation, can file a motion with the bankruptcy court to order the Trustee to abandon the property.

(6)  Once the property is abandoned, the debtor is free to lease the space out and continue paying the mortgage.

Commercial or residential real estate owners can be anxious to rent out their properties while they’re in bankruptcy, but it’s important for them to wait until the case or the property is disposed of before doing it. It’s also a good reason to hire an experienced Las Vegas bankruptcy lawyer.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation by calling 702-880-5554.