Fear not gentle landlord, for Bankruptcy reform has arrived

Under the Bankruptcy Reform Bill, homeowners who file within 40 months of buying a home could protect no more than $125,000 of equity from creditors, and after 40 months State homestead limits would apply. "This provision prevents a debtor from shielding assets by purchasing a home in a state with an unlimited homestead exemption, while also recognizing that states should have the ability to set homestead exemptions at levels they deem appropriate," the National Association of Home Builders noted in an announcement.

Also, the proposed legislation contains provisions that would provide more protections to the owner of a rental property in the event a tenant declares bankruptcy. "The legislation strikes a fair balance between the rights of tenants and property owners, and it also provides sufficient safeguards for home owners to protect their property in the event of a bankruptcy filing," said David Wilson, president of the association and a custom-home builder from Ketchum, Idaho. Under current law, delinquent tenants facing eviction can file for bankruptcy, which requires the property owner to stop eviction proceedings. Also, tenants can remain in a rental property for months without paying rent until a bankruptcy judge lifts this stay, according to the home builders' announcement. The Mortgage Bankers Association stated that under the current code, commercial and multifamily lenders "are vulnerable to abuses in single asset real estate bankruptcy cases where the asset was valued at more than $4 million," and the proposed legislation would help to protect lenders from damages and expenses associated with foreclosure delays related to these bankruptcy cases.