If you decide to file for bankruptcy in California, one of the first choices you will have to make is whether you wish to file for Chapter 7 or Chapter 13. This decision will impact your ability to keep possession of your real estate investments. Typically, if you file for Chapter 7, the bankruptcy trustee will take control of your property and sell it – disbursing the proceeds to your creditors. On the other hand, filing for Chapter 13 would allow you to keep your real estate investments, but it might significantly impact your bankruptcy repayment plan. The Bankruptcy Group assists individuals facing financial hardships to understand their rights in bankruptcy and work towards a solution. Our Roseville bankruptcy attorney considers investment properties in more detail in the following paragraphs.
Real Estate Investments in a California Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is designed for people who are unable to pay their debts. If you have several real estate investments that are underwater, then it is likely the right choice. When you owe more on your properties than their value, the bankruptcy trustee will not sell them. This is because the cost of selling the properties and paying their mortgages would leave no proceeds for your other creditors.
Because the trustee will not take possession of the property, you will have some decisions to make. One option is to surrender the property. The benefit of turning over real estate investments through a Chapter 7 bankruptcy is that any personal liability that remains after surrendering the property will be discharged. The discharge allows you to get rid of a bad investment without paying anything towards any deficiency. Be sure to discuss the state of your real estate investments with our knowledgeable California Chapter 7 bankruptcy attorney.
Protecting Real Estate Investments with California Bankruptcy Exemptions
When you file for bankruptcy, all your property becomes part of the bankruptcy estate. In Chapter 7, that property is available to the trustee to sell to satisfy your creditors. However, there are protections, or exemptions, that allow debtors to keep a large portion of their property. In most cases, a debtor will be able to hold onto their house, car, and many other personal possessions. Unfortunately, California does not have an exemption for real estate investments.
Debtors in California can benefit from a “wildcard” exemption under the California Code of Civil Procedure § 703.140(b)(5). Depending on the equity of your home, you will have anywhere between $1,550 to $32,375 to apply to the property of your choice. However, this figure will be towards the lower end if you must protect the equity in your residence. Also, while the amount might look significant, it can quickly be diminished when it is spread among your assets, such as bank accounts or other valuable possessions. Our California bankruptcy attorney will explain what exemptions will be helpful in your case.
Chapter 13 Bankruptcy with Real Estate Investments in California
If you want to keep all your real estate investments, you want to file for Chapter 13. Debtors in Chapter 13 are not required to sell their non-exempt property. However, its value has a direct impact on their bankruptcy.
A Chapter 13 bankruptcy restricts your debt, allowing you to discharge some liabilities and providing a three to five-year payment plan to pay back other debt. What debt you have to pay and what debt you can discharge depends on your circumstances. Our Citrus Heights Chapter 13 bankruptcy attorney will review your assets and liabilities in detail before filing a case.
Real Estate Investments and Your Chapter 13 Bankruptcy Plan
If you have nonexempt equity in your real estate investments, it could increase your Chapter 13 plan payment. Unsecured creditors are supposed to be paid the value of your nonexempt property. In a Chapter 13 bankruptcy, your unsecured creditors should be paid as much as they would have if your property were sold in Chapter 7. Therefore, if you have a lot of equity in your investments, your plan payment will be significantly higher. In some cases, it might not be feasible to keep all your real estate investments.
On the other hand, if you were behind in any mortgage payments on your real estate investments, you are entitled to pay those arrears through your Chapter 13 plan. In this situation, you could hold onto properties that might have been threatened by foreclosure.
A Chapter 13 bankruptcy might afford an additional benefit to a debtor with real estate investments. Under certain circumstances, you could cram down a mortgage on an investment property. Our California chapter 13 bankruptcy attorney would petition the court to reduce the amount you owe on a property to its fair market value at the time your bankruptcy was initially filed. For instance, if your property is worth $100,000, but you owe $150,000, the court could reduce your debt by $50,000.
However, while this sounds great, there is a major hurdle to overcome. You must be able to pay the full amount through your bankruptcy plan. For many people, it is not possible to satisfy even a reduced mortgage in three to five years.
Call Our California Bankruptcy Attorney to Review Your Real Estate Investment Options
No one wants to file for bankruptcy. However, there are times when circumstances make it a necessity. When you have worked hard to accumulate real estate investments, you want to ensure you can keep them even. Our Sacramento bankruptcy attorneys are sympathetic to your concerns and want you to benefit as much as possible from a bankruptcy. However, there are substantial issues with trying to keep investment properties. Our office will work with you, so you thoroughly understand all your options and risks. Call The Bankruptcy Group at 1-800-920-5351 to schedule a free consultation to review your real estate investments.