If I file for bankruptcy doesmy second mortgage and all debt get discharged?

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If I file for bankruptcy doesmy second mortgage and all debt get discharged?

What happens to the two rental properties I own. Can I keep them?

Asked on February 21, 2011 under Bankruptcy Law, Florida

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Secured debt--like mortgages; where there is some property or asset the lender can take possession of in the event of a default--does not operate like unsecured debt (like credit card or medical bills) in bankruptcy. If debt is secured, the bankrupt debtor must either agree to keep paying it or lose the property. The remaining balance of the debt will be wiped out--so you won't owe additional money--but if the mortgage is not paid, you can lose the house. There are some differences in the mechanism between ch. 7 and ch. 13 in this regard, and you may be able to get the lender to accept a lower amount rather than the full payments you'd been making in a ch. 7 bankruptcy, but essentially or its pay or lose the property.

As  for rental properties: if you have mortgages on them, see above, though in this case ch. 13 may be better if the property is underwater on the loans; ch. 13 lets you "cram down" the value of investment (not primary residence) property. If you own the property without mortgages, then what happens depends on what kind of bankruptcy you file: in ch. 7, they'd be assets of the bankruptcy estate and you could potentially have to sell one or both. In ch. 13, their income streams would be considered in determining your plan.


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