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We've got way more debt than we can handle, but we've also got a rental property that I don't want to give up. Can we file bankruptcy and protect the property?
The fate of rental property is a concern for many people who are considering bankruptcy. You can put your worries to rest, because it is indeed possible to retain your rental property. Furthermore, you may be able to have the principle reduced, which will allow you to pay less for it.
To keep your rental property, you will need to file a Chapter 13 bankruptcy. This type of bankruptcy is one where your debts are restructured so that they become more manageable. You will be given the opportunity to develop a detailed plan, specifying who you will pay, how much each payment will be and how often you will make those payments. Since you will be paying for your possessions, you do not have to forfeit any of your property.
Chapter 13 makes debts more manageable because it also affords the opportunity for negotiation. This often involves measures such as the cancellation of late fees and the suspension of interest. In the case where a person has rental property, it may include a cram down, which is a procedure that reduces the principal on a property to the current fair market value.
For example, you may have agreed to purchase your rental property for $80,000. Due to depressed property values, it may only be worth $50,000 now, and a cram down can reduce your liability to this amount. That would also entitle you to have your loan adjusted accordingly.
Dealing with rental property during bankruptcy is a complex matter. You should seek the guidance of a skilled attorney to ensure the best outcome.
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