Wisconsin Bankruptcy Law: What Happens to Your Rental Property

Wisconsin bankruptcy law offers individuals facing financial difficulties a chance to reorganize or eliminate their debts. But what happens to your rental property during this process? Understanding the implications for rental properties in bankruptcy is crucial for both landlords and tenants.

In Wisconsin, two primary types of bankruptcy are available for individuals: Chapter 7 and Chapter 13. The treatment of rental properties can differ significantly between these two options.

Chapter 7 Bankruptcy involves the liquidation of non-exempt assets to pay creditors. For rental property owners, whether your property can be retained depends largely on its equity. Wisconsin law allows certain exemptions, including a homestead exemption, which generally applies to a primary residence but can also have implications for rental properties if you live in one of them. If your rental property has little to no equity (the market value is less than what you owe), it may be safe from creditors. However, should the property have substantial equity, it might be sold in the bankruptcy process to pay creditors.

If you choose to keep your rental property through Chapter 7, you will need to continue making mortgage payments. Failure to do so can lead to foreclosure, regardless of the bankruptcy filing.

Chapter 13 Bankruptcy, on the other hand, allows individuals to keep their assets while repaying debts over a specified period (usually three to five years). This option is often more favorable for rental property owners. If you're behind on your mortgage or other debts, Chapter 13 can provide a way to catch up on payments and retain your property. Using this method, landlords can create a repayment plan, allowing them to keep the rental property while still managing their financial obligations.

Another key aspect of Wisconsin bankruptcy law is dealing with tenants. Regardless of which bankruptcy chapter you file, the automatic stay that goes into effect halts all collection activities. This means that tenants cannot be evicted solely due to the landlord's bankruptcy filing. However, if the landlord isn’t able to maintain mortgage payments, this could eventually affect the tenants if the property goes into foreclosure.

In some cases, if you have multiple rental properties and decide to file for bankruptcy, it may be prudent to differentiate which properties you want to keep and which you’re willing to let go of. Legal advice from a Wisconsin bankruptcy attorney can help you navigate these decisions effectively.

Moreover, understanding the potential impact on leases is crucial. When a landlord files for bankruptcy, existing leases typically remain in effect. Tenants should continue paying rent according to the lease terms, as this will be vital for the landlord's ability to maintain the property and adhere to the repayment plan.

In conclusion, navigating Wisconsin bankruptcy law regarding rental properties requires careful consideration. Whether you choose Chapter 7 or Chapter 13, understanding your rights and obligations can significantly influence the outcome of your case. Consulting with a knowledgeable attorney can help ensure that you make informed choices that protect both your financial interests and those of your tenants.