Bankruptcy & Investment Property Foreclosure

Bankruptcy is the legal process used to either liquidate or restructure a person or entity’s debt. In the case of investment property, it is a means to stop the foreclosure process and reorganize the past due amount of the mortgage and move forward with regular monthly payments.

  1. Investment Property Foreclosure

    • Investment property is property held for the purposes of earning a profit. This includes rental houses, commercial lease property, duplexes and apartments. As is the case with your personal residence, if you become delinquent on the payments for your investment property, the mortgage holder may foreclose on the property. Foreclosure is the legal process used for a mortgage company to take possession of a property in which it holds a secured interest.

    Automatic Stay

    • The automatic stay is the protection put in place by filing bankruptcy. If you have investment property that is being foreclosed on, the automatic stay stops the foreclosure process and bars the mortgage holder from continuing any collection activity. You then have the opportunity to reorganize your debt so it is more easily managed.

    Chapter 13 Plan

    • The plan is the means in which debt is repaid in a Chapter 13 bankruptcy. Although you cannot put the entire balance of the mortgage within the plan, the past due amount is restructured into a 3- to 5-year payment plan. Priority debt, such as taxes and child support that must be repaid, and other secured debt may also be dealt with in the plan. Depending on your disposable income, a percentage of your unsecured debt is also paid.

    Regular Mortgage Payments

    • In addition to the plan payment, you are required to pay your regular monthly mortgage payments on your investment property. If you fail to pay the plan payment or the regular monthly payments, the mortgage holder may ask the court to lift the automatic stay so it may proceed with the foreclosure process.

    Necessary for an Effective Reorganization

    • In order for the Chapter 13 trustee to approve your plan, it must be determined that the property you are retaining is necessary for an effective reorganization. If the investment property you own does not provide adequate income, the trustee may determine that you would be better off without it. If this is the case, you may surrender the property, return it to the mortgage holder, and the remainder of the debt would be dealt with as unsecured.

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