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If you’re considering filing for a Chapter 13 bankruptcy and you own real estate as an investment vehicle, it’s important to understand how those properties could be used to pay back debts.

Issues in Chapter 13 Bankruptcy

In this instance, you can keep all of your property as long as you can make payments towards your repayment plan. In some cases, you will be required to make additional payments on extraneous luxury items (a third car, a boat, etc.) in order to keep those items as well. The additional payments are distributed to your unsecured creditors––this compensates them for the amount spent on items that are not necessary for an effective reorganization.

If you’re behind on your mortgage payments, the plan must provide for sufficient payments to become current on those payments. If you have non-exempt assets, you’ll have to pay your unsecured creditors in full, your disposable income according to the means test, or an amount equal to the value of those non-exempt assets, depending on your specific situation.

Issues in Chapter 7 Bankruptcy

If you have investment real estate and you are considering filing for Chapter 7 bankruptcy, care must be taken before filing the case. If there is equity in the property that is not able to be exempted, then Chapter 7 would not be a wise choice. Also, if the property is rented or leased out and you are receiving rental payments, Chapter 7 may not be a good fit for your financial situation. In a Chapter 7, the right to receive rental payments is property of the bankruptcy estate, and so those monthly rental payments would instead go to the Chapter 7 trustee.


If you have an investment or even singular real estate that you’re looking to hold on to, then it’s vital to consult a qualified bankruptcy attorney to learn about your rights and options. Call Natural State Law today at (501) 916-2878 to learn more and schedule a free consultation.