How will my investment property be treated in bankruptcy?

When you file bankruptcy, property plays an important role what will happen during that bankruptcy case. If you have investment property, most of the bankruptcy exemptions that commonly apply to real estate are not available (unless your state allows for the homestead exemption to apply to this property.) In other words, if you have valuable investment property, it may be difficult to file Chapter 7 bankruptcy and to keep that property.

Understanding Your Options

If you wish to file Chapter 7 bankruptcy and you own investment property, be sure that the equity on that property is very low or not present. Equity is the amount of value on the property after the mortgage balance is subtracted from the appraised value of the home. If there is no benefit in selling the investment property, the bankruptcy trustee may allow you to keep the property if you are current on the loan and you reaffirm the debt.

This does not work in all cases. You may wish to file Chapter 13 bankruptcy instead if you have one of the following circumstances.

• You own the property outright.
• The property’s equity value is too high.
• You do not want to lose the property or risk losing the property in a bankruptcy.

In Chapter 13 bankruptcy, assets are not lost. Rather, you will enter a repayment plan to pay down your debts.

Hire an Attorney

Before you consider filing for bankruptcy with investment property, hire an attorney. In some cases, you should not file for bankruptcy if you could lose that property through the bankruptcy.