When someone thinks of bankruptcy, one of the very first things that come to their mind is that they do not want to lose the property and assets they currently have. If you own property such as a home, vehicle, or any other property of value, you might automatically assume that bankruptcy is not an option for you because you will have to surrender your assets to your bankruptcy estate.
However, you will be happy and surprised to learn that a Chapter 13 Bankruptcy might present some very unique opportunities for you that you were not previously aware of. For those of you facing financial difficulties while owning an investment property you do not want to lose, a Chapter 13 Bankruptcy might be the perfect solution for you.
You will be happy to know that under Title 11 of the United States Bankruptcy Code, Section 1322(b)(1), you can cram down a mortgage on an investment property. Cram down essentially means that if your mortgage is more than the fair market value of your investment property, then you can lower the principle balance of your mortgage to match the fair market value or secured value of the property. Basically, you can modify the mortgage’s contract by changing the principal balance, interest rate, and term. AND… the creditor cannot object to it.
For example, if the principle balance on your investment property mortgage is $200,000, but the fair market value of the property is only $100,000, you can “cram down” the principle balance of the mortgage to $100,000.
BUT…this option is not available for a mortgage on a principle residence or homestead property. Section 1322(b)(1) of the Bankruptcy Code specifically states that “may modify the right of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence…” The apparent reasoning by the legislators is that special protections should be given to Lenders who provide mortgages for a principle residence because they are providing an essential service.
There is nevertheless one other major limitation to being able to cram down a mortgage on an investment property. Many courts require that the mortgage is paid off by the time you complete your Chapter 13 Plan, which is within either three or five years. This translates into very high Chapter 13 Plan payments that can be very difficult to afford and keep up with.
Being able to cram down a mortgage on an investment property is not the only type of cram down offered through a Chapter 13 Bankruptcy. You can cram down most debts that are secured by property such as an auto loan.
If you have an investment property and wondering if a Chapter 13 Bankruptcy might help you save it, or have another secured debt that you would like to cram down through a Chapter 13 Bankruptcy, contact the Law Office of David M. Goldman, PLLC today for more information. Set up a consultation today so that an attorney can help you determine what your best option might be.