Some people who petition for bankruptcy are looked at more closely by the courts when they’re trying to keep more than just their exempt property. That’s especially true when you own rental or investment real estate. If you fall into that category of petitioners, we want you to be fully aware of all of your options. That’s how you can make the decision that’s best for yourself.
Chapter 7 bankruptcy
When you file a Chapter 7 bankruptcy petition, you’re basically telling the court that it’s impossible for you to pay your debts, and that you only have enough money to survive on. If you make that Chapter 7 filing, the bankruptcy court is allowed to enter any property that you own and take possession of anything that isn’t exempt from Chapter 7. That property is sold by the court, and the proceeds of the sale are used to pay your creditors. Those items that aren’t exempt include any investment properties that you own that have significant equity, even if they’re earning income for you.
That’s the bottom line on a Chapter 7 bankruptcy filing. Although there are different rules for your primary residence, you’re probably not going to be able to keep the equity in any rental or investment property that you own.
Chapter 13 bankruptcy
Given the fact that you own rental or investment property, a Chapter 13 bankruptcy might be a better option for you. If your income from the property is paying for it, and you’re earning a profit, you might be able to keep it. The bankruptcy court might allow that profit to be used to pay down your debt over the Chapter 13 three to five year repayment plan. If it isn’t earning a profit, you’ll probably be required to sell it.
Under Chapter 13, you can continue to own a rental or investment property through a mortgage cram down if you can still afford to pay for it. The law allows the rental or investment property loan that you owe to be reduced to the actual value of the property. When that happens, the remainder of the loan can be deemed unsecured debt, and that can become part of the Chapter 13 repayment plan. The law won’t allow you to do this with your primary residence though.
You can call us or send us an email to arrange for a free consultation on either a Chapter 7 or Chapter 13 bankruptcy. As Los Angeles Bankruptcy Lawyers with extensive experience in the bankruptcy courts, our attorneys will provide you with the best possible legal advice for your situation. We can even get started on your bankruptcy filing on the same day that you speak with us.