Is Chapter 13 ideal for dealing with investment properties?

If you have investment properties, then Chapter 13 will let you keep such properties and also cram down on the mortgage on investment properties. A Chapter 13 debtor is allowed to retain his or her assets. The debtor must make payments according to the repayment plan approved by the court.

Under the US Bankruptcy Code, a Chapter 13 debtor can alter the rights of creditors whose claims are secured. So you can modify the rights of any lender. However if the claim of the lender is secured exclusively by a security interest in the debtor’s principal residence, then the debtor cannot avail this provision. This provision is known as the cram down provision.

You can use the cram down provision to deal with investment properties. By using the cram down provision you can split the outstanding mortgage into secured and unsecured claims. The current appraised value of the property is treated as a secured claim. The amount over the current appraised value of the property will be treated as an unsecured claim. You must continue making payments in the secured part but you need not pay the entire amount of the unsecured part. If you plan carefully you can discharge the unsecured part by paying peanuts. You should consider using the cram down provision of Chapter 13 if the outstanding mortgage on the investment property is more than the current appraised value of the property.

Consult with an experienced bankruptcy attorney. The attorney can advise you on how to avail the benefits of the cram down provision on your investment properties.