real estate

The Broad Definition of "Real Property" in Bankruptcy

"Real Property" in bankruptcy must be disclosed in your bankruptcy petition under Schedule A, and protected from your creditors with exemptions in Schedule C. In short, think of real property as land, and anything you would building on land. This is separate from "personal property", which includes things such as cars, household items, savings accounts, and pretty much anything else you can imagine.

The most common real property in bankruptcy is the Debtor's home. This is probably the classic definition of real estate in the minds of most people. Of course, you must disclose your primary residence in your bankruptcy petition, and exempt it using the "homestead exemption", which allows debtors to protect their equity in their home from creditors. You must actually live in the home in order for it to qualify for this exemption, hence the "homestead". If you are not living there (for instance, you want to keep the home, but you are living out of town in an apartment for work), this bankruptcy exemption is not available.

It also is not surprising to most that rental properties are considered to be real estate. Rental properties with equity must also be exempted in bankruptcy, often times using the "wild card" exemption. This exemption is limited, so you may be required to file a Chapter 13 bankruptcy in order to keep a rental in bankruptcy. Regardless, rental properties are  also clearly real estate.

What about campgrounds or undeveloped property? This is where some debtors begin to believe the property is not "real estate", but it certainly is! Fractional ownership in a camp ground or undeveloped property also must be disclosed and exempted in bankruptcy. So, if you and 3 cousins each have a 1/4th interest in a campground worth $30,000, you have a $7,500 interest in that real estate. You don't want to leave this out... the trustee will do property searches, and failing to disclose the property could lead to perjury charges. You must disclose it and exempt it.

Condos and mobile homes are also considered to be real property, and must be disclosed in bankruptcy. Once again, this leads to confusion for some filers because they think of real estate as traditional brick and mortar properties, and they don't think in terms or condos or trailers. The good news is, if you live in the condo or mobile home, you can use the more generous homestead exemption to protect the property, even though it may not be a traditional "home". If in doubt, tell your bankruptcy attorney about all property while preparing your petition, and he or she will help you determine its status.

Finally, and most confusingly of all, burial plots are considered real property. This is especially confounding for many filers, as they think of real estate as a home, a place where you live. But, keep in mind the broad definition of real property given above... land, or anything you build on land. A burial plot qualifies. Normally, this is not a problem, as burial plots have limited value. But, it is best to disclose everything and exempt it from your creditors.

If you have any confusion about what is "real property" and when it can be protected from your creditors, contact us to set up a free consultation. We'll be happy to discuss your situation and make sure you keep your real estate.