Bankruptcy Solutions for Reno Real Estate Investors
In the current real estate market, Chapter 11 bankruptcy is the real estate investor’s dream, and the attorneys at Darby Law Practice create real estate bankruptcy solutions for investors in Reno by turning their under-performing investment property into a profitable investment by turning their upside-down property right side up.
Here is a common dream scenario for real estate investors: If only their mortgage balances could be written down to the current fair market value of their real estate, and if only the interest rate could be reduced to current market rates, they would be able to have profitable rental operations and pay that new secured debt back in full. This may sound like a dream, and in fact lenders are universally opposed to voluntarily writing down mortgage debt. This feat can still be accomplished, however, through a Chapter 11 Reno bankruptcy.
Secured and Unsecured Debt in Chapter 11
A secured debt is one which is secured by collateral, meaning that if you default on the loan, the bank can take the collateral as security for the debt. Under bankruptcy law, however, a secured debt is only secured to the extent of the value of the collateral. For example, if you have a piece of property that is worth $100,000 and has a mortgage against it that is $150,000, bankruptcy law would say that you actually have a secured debt of $100,000 and an unsecured debt of $50,000, because there is no collateral or security backing up that last $50,000.
In a Chapter 11 bankruptcy, you can actually split that one debt into two, leaving you with a $100,000 secured mortgage and a $50,000 unsecured debt. You can then apply a new interest rate to the secured mortgage, which is generally determined by applying the current prime rate of interest plus a risk factor from 1% to 3%. With a prime rate of 3.25%, your new interest rate would be somewhere between 4.25% and 6.25%. You can then take that debt and re-amortize the loan over 30 years, which in most cases will substantially reduce your current monthly payment.
What happens to the unsecured portion of the debt? In a consumer Chapter 11 bankruptcy, like a Chapter 13, your creditors are paid off over a five-year period out of your disposable monthly income. At the end of the plan period, any unsecured debts left over are discharged by the bankruptcy court, meaning that you are no longer responsible for repaying them. A Chapter 11 bankruptcy can be very beneficial for real estate investors.
Reno Chapter 11 Bankruptcy Lawyers
To learn more about Chapter 11 bankruptcy and how it can be used to make your investment property more profitable, contact the Reno Chapter 11 bankruptcy lawyers at Darby Law Practice to schedule a free, initial consultation.