Investment Property in Bankruptcy: How it's Treated

Chapter 13 bankruptcies are typically filed by individuals with household income above their state median as well as those who have assets they wish to protect or keep, such as investment property. Chapter 13 bankruptcy works by reducing the amount of debt the filer owes as listed on a petition filed with the bankruptcy court at the start of the process. Generally speaking, the end result of a Chapter 13 is the creation of a payment plan after a negotiation process between your Los Angeles bankruptcy attorney and your creditors.

Protecting Investment Property

Unlike a Chapter 7 filing, your investment property can be protected through a Chapter 13 bankruptcy. This is a great benefit, especially if the borrower is upside down on the mortgage on the investment property but can afford to make payments if the balance owed is reduced on that property. This protection can be provided by your bankruptcy attorney working with your lender in the payment negotiations to come to an agreement on your behalf. Known as an “Investment Property Cram Down”, the process allows borrowers to reduce their balance owed on an investment property to the current fair market value of the property. The situation with an investment property is very different from a primary residential property where the only possibility for reducing mortgage balances is on those which are subordinated to the first mortgage.

Borrower/Lender Negotiations

This type of reduction provides the investor/filer the possibility of keeping investment property, while owing less on it, as long as your bankruptcy attorney can come to an agreement with the lender. The investor/filer will need to make all payments on schedule to ensure that the creditor doesn’t go back to the bankruptcy court to have the cram down discharged and demand the full amount of the original loan. The reduction, if agreed upon, can save thousands of dollars both on the principle owed and lower interest payments associated with the lowered balance.

Get Legal Advice First

Before entering the Chapter 13 bankruptcy process, filers with investment property should discuss their total financial picture with an experienced bankruptcy attorney. Most attorneys will provide a free initial consultation to assess financials, determine the best strategy, and discuss fee arrangements. In addition to reducing the balance owed on an investment property, the attorney will look for opportunities to reduce balances owed on the primary residence through a process called “lien stripping” as well as the balance owed on vehicles which qualify for “auto cram downs”. A bankruptcy lawyer can also add value by handling the necessary documents and ensuring that a filer’s rights are protected throughout the bankruptcy process.

Chapter 13 bankruptcies can result in drastically lower balances owed on assets that the filer gets to keep. It all starts with consulting a Los Angeles bankruptcy attorney at the Law Offices of Zhou & Chini, intensive planning, and execution of a well- developed strategy. If you have an investmet property you want to protect in bankruptcy or simply want more information on Chapter 13 call the Law Offices of Zhou & Chini today. With over 10 locations throughout California we are here to help. To scedule a free consultation call us toll free at (800) 972-9600 or visit us online.

From the author: California Chapter 13 Bankruptcy Attorneys

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