This paper discusses the treatment of a vendee’s land contract in a Chapter 13 bankruptcy. The land contract presents a challenge in the context of Chapter 13 bankruptcy – is it more like a mortgage or an executory contract? The bankruptcy court’s treatment of the land contract will itself depend on that particular court’s reading of the applicable state law on contracts.
If the vendee/debtor’s land sale contract is treated as an executory contract, then he can only assume or reject it, and if he assumes it, the default must be cured “promptly.” Alternatively, if the land sale contract is treated as a secured financing devise, then the vendee/debtor may assume the contract and cure the default (if there is one) within a “reasonable time” and maintain payments. Lastly, if the contract is treated as a secured financing device, and it is subject to modification (and only some are), the vendee/debtor may modify it and make payments over the life of the plan. How a land contract is treated will determine which Bankruptcy Code section is applicable. Also discussed is Indiana law on land contracts, and how it is applied in both state and bankruptcy courts.
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