Chapter 11 Bankruptcy for Individuals Who Want to Keep Investment Real Estate

If you own a business in the Tampa Bay area and are thinking about filing for bankruptcy, you probably have a number of questions about what will happen to your property. As you may know, a business owner has different options for bankruptcy protection. Typically, if you own a restaurant or another type of establishment in Hillsborough County, for example, and you plan to file for bankruptcy, you likely will be deciding between Chapter 7 bankruptcy (also known as liquidation bankruptcy), and Chapter 11 bankruptcy (also known as reorganization bankruptcy), according to the website for the United States Courts.

What is reorganization bankruptcy? In short, it is a type of bankruptcy that allows a debtor to “reorganize” his or her debts through a repayment plan, rather than having to sell (or liquidate) property in order to pay off creditors. As such, debtors often prefer this type of bankruptcy because it allows them to retain property while still dealing with the burden of debt. But if you file for Chapter 11 bankruptcy in Tampa, does a real estate investment count as “property” under the law? In other words, what happens to real estate investments when you file for Chapter 11 bankruptcy?

Did the Individual or the Business Invest in Real Estate?

The first question you will need to answer when thinking about how the bankruptcy court will look at real estate investments is this: did the individual or the business invest in real estate? If a small business owner in Tampa is filing for Chapter 11 bankruptcy because of debt issues in the business, then none of the business owner’s personal assets will be involved in the bankruptcy process, according to the U.S. Courts website and Chapter 11 bankruptcy law. To better understand how this distinction can impact a real estate investment, we should look at a couple of different examples:

  • – If a Tampa Bay business owner invests in real estate with her personal money—an investment that does not have anything to do with the business—and then files for Chapter 11 bankruptcy in order to reorganize the debts of the business, will she need to worry about whether she can retain investment real estate? In short, Chapter 11 sees a clear distinction between personal property and business property. As such, if the real estate investment is a personal asset, it will not come into play in the bankruptcy proceeding.
  • – Differently, what happens if a Tampa Bay business owner believes that her business is doing relatively well and decides to invest in real estate to open up another branch of the business? Will this real estate investment come into play if the business owner files for Chapter 11 bankruptcy? This situation is different than the one above, given that the real estate investment might look more like a business investment (and thus a business asset) than a personal investment (and thus a personal asset). However, just because a business has real estate investments does not mean that it will lose them in the course of a Chapter 11 bankruptcy. To be sure, this type of bankruptcy protection specifically is not a liquidation bankruptcy. As such, businesses that file for Chapter 11 bankruptcy typically can keep assets by reorganizing their debts and paying creditors through a single payment plan.

Single Asset Real Estate Debtor

If you are a single asset real estate debtor, what the U.S. Courts refers to as someone with “a single property or project, other than residential real property with fewer than four residential units, which generates substantially all of the gross income of a debtor,” your case will look a bit different.

Chapter 11 may be able to help you to save a single asset real estate property, at least temporarily. However, it your business problems continue (and you cannot make sufficient income from your single asset real estate property), you may need to convert your bankruptcy to Chapter 7. In this case, liquidation bankruptcy would require the debtor to sell all assets that are not exempt.

Contact a Tampa Bay Bankruptcy Lawyer

Bankruptcy law is extremely complicated, especially when you own a business in the Tampa Bay area and have concerns about personal versus business assets and property. An experienced bankruptcy lawyer in Tampa can answer your questions today. Contact Tampa Law Advocates, P.A. today to discuss your case.