How to File Chapter 13 Bankruptcy on Investment Property

When you have an investment property that is costing you too much money, especially when coupled with other debts that you cannot pay, you may wonder if you can file chapter 13 on investment property. Learning how a Chapter 13 bankruptcy can be filed to deal with the problems surrounding your investment property is important, as Chapter 13 bankruptcy may help you to get your finances back under control.

Filing Chapter 13 Bankruptcy on Investment Properties

Chapter 13 bankruptcy is a restructuring bankruptcy that allows you to keep the property you own and that allows you to use the court and the assistance of a court-appointed trustee to help create a repayment plan where some of your debts are discharged and some of your debts are payable at a reduced amount. The repayment period will stretch over a three to five year period, after which you have satisfied your debts and can start fresh. Chapter 13 is ideal for dealing with investment properties because it allows you to revalue the property and negotiate a reduced mortgage based on the current market value. So, how does this work?

The ability to renegotiate the terms of an investment property mortgage is unique to Chapter 13 bankruptcy, and does not apply to your primary residence, but only to investment properties. The common name for this renegotiation is called a “cram down,” and it allows you to force the lender to renegotiate the terms.
Let’s say you have an investment property that you paid $500,000 for, but which is only worth $350,000 based on its current market value. By claiming Chapter 13 bankruptcy and renegotiating the loan based on the actual market value of the property, you can force the lender into an agreement whereby they accept the lower amount and accept a lower payment on that amount, since the property has depreciated and is no longer worth the amount of the original loan.

By filing a Chapter 13 bankruptcy with a “cram down” on your devalued investment property, you can greatly decrease the amount of money that you will have to repay in order to own the property free and clear, as well as decrease the monthly payments on that amount and the interest being charged on that amount at the same time. This little known facet of Chapter 13 bankruptcy can work in your favor.

Getting Help

If you have investment property and are considering filing a Chapter 13 bankruptcy, it is important that you consult with an experienced bankruptcy attorney. Your attorney can provide you with details on how to file a bankruptcy and how to negotiate more favorable payments and terms on your investment property mortgages.

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