If I file chapter 13 what happens with investment property I own?

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Question:

If I file chapter 13 what happens with investment property I own?

Answer:

Often, those who are struggling with debts and who have investment properties opt to file a chapter 13. The reason this occurs is because the rules for chapter 13 and investment property are somewhat advantageous to property owners in most cases. 

The first thing to note is that if you own your investment property free and clear (aka you don't have a mortgage on it), that investment property will not in any way be affected by chapter 13. Unlike a chapter 7, which requires you to turn over many of the assets and possessions you own, including equity in real property that doesn't fall under the homestead exemption, a chapter 13 requires no such thing. If the investment property that you own is generating a monthly income for you, then that income can be counted just like any other in assessing how much you make, and thus how much you are required to repay under a chapter 13 repayment plan. However, the property will remain yours and the equity in it will remain yours. 

The other key to understanding chapter 13 and investment property - and the reason chapter 13 is attractive to many property owners- is because a provision called a cram down provision exists and can sometimes be used to reduce the mortgage debt owed on investment properties. Under a chapter 13 cram down, the outstanding balance on a mortgage (usually a second mortgage) that exceeds the fair market value of the property, will be reclassified as unsecured debt. In other words, the actual value of your rental property mortgage is going to be adjusted down so your mortgage is only equal to what the property is worth, and the difference is going to become a part of your chapter 13 repayment plan. 

To get help understanding if this chapter 13 cram down may be advantageous in your situation, or for other assistance in filing chapter 13 bankruptcy, consult with a lawyer immediately.

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