Filing bankruptcy with assets can be very stressful. You want to know how filing for bankruptcy will affect those assets before you file so that there are no surprises. One type of asset that you might be concerned about is an investment property. Can you keep it if you file bankruptcy? Possibly, but most likely not without some consequences.
A Chapter 7 Bankruptcy is a liquidation of your assets. If your investment property has any equity in it all, meaning it’s worth more than what you owe on it, then your Chapter 7 Trustee will most likely want to take possession of the property. The Trustee will sell it, and then distribute the proceeds of the sale to your creditors after first paying off all mortgages and liens.
If your property is upside down, meaning you owe more on it that it is worth, then your Trustee MIGHT not go after it because they would get little if anything from selling it. HOWEVER, since all of your assets are liquidated in a Chapter 7 Bankruptcy, your Trustee can still choose to take possession of the property and short sale it. This applies even if you elected to keep the property and reaffirm the mortgage on your bankruptcy schedules.
If your Trustee chooses to take possession of your investment property in either of the situations above, you still might be able to keep your property. It is possible to reach an agreement with the Trustee in which you buy back the property. This generally includes paying the Trustee the amount of equity of the property or whatever proceeds the Trustee would receive from selling it. Usually, you can make payments towards the buy back amount over 12 months.
A Chapter 13 Bankruptcy is a reorganization of your debt and almost always allows you to keep all of your assets. If you have an investment property and want to keep it, filing a Chapter 13 Bankruptcy is probably your safest option.
If you are receiving rent and that rent covers 100% of the mortgage payment, then your Chapter 13 Plan will most likely not be affected by the investment property. But if you are not receiving rent or the rent does not cover 100% of the mortgage, then you will have to pay the portion of the mortgage payment that is not covered by your rental income to your unsecured creditors. For example:
You have a homestead and an investment property that is currently rented out. Your mortgage payments on your investment property are $1,500.00 per month. However, you are only receiving a rent of $1,000.00 per month. To keep the investment property, you will have to continue making the regular mortgage payment and then pay an additional $500.00 in your Chapter 13 Plan to keep it.
If you have assets and are thinking about filing bankruptcy, please speak with an attorney first. A knowledgeable bankruptcy attorney can help walk you through each possible scenario so that you know what will happen to your assets before you file your bankruptcy. Contact the Law Office of David M. Goldman, PLLC today for a free 30-minute consultation.