Can I keep investment properties when filing bankruptcy?

When you file for Chapter 13 bankruptcy, your debt is restructured through payment and interest rate modifications. Unlike a Chapter 7 filing, you are not required to liquidate your assets. Because investment properties such as rental units and apartment buildings are considered separate from your homestead (primary residence) under Chapter 13, they are treated differently. Basically Chapter 13 allows you to "cram down" your debts on investment properties to reflect their current market value (CMV). This is done by readjusting your principle on the property.

To get a Chapter 13 cram down, your attorney has to be able to persuade the bankruptcy court trustee to force your creditors to write off some of the debt. This write off allows you to bring down the principle balance of your loan to the current market value.

A cram down works like this: let's say that you purchased rental property in 2006 for $150,000 with no money down. In the following years, your fair market value has depreciated considerably and until CMV is now worth around $50,000. The negative equity amounts to $100,000. With a cram down, your creditors will be legally required to accept the current $50,000 CMV instead of the 2006 CMV of $150,000 and your loan will be adjusted accordingly.

A Chapter 13 cram down allows you to keep your investment property and at the same time reduces your monthly payments on that property. However, you must make timely payments without fail. If you miss a payment, your bankruptcy protection will be eliminated.

Talk with an experienced bankruptcy attorney to help you throughout the bankruptcy process.