When the current market value of your home is less than the outstanding mortgage, you mortgage is said to be upside down. You can cram down an upside down mortgage in a Chapter 13 bankruptcy proceeding.
Chapter 13
Chapter 13 bankruptcy proceeding allows your to pay your debts, either the entire amount or a part of it, with the help of a payment plan under the supervision of the court. Chapter 13 is designed for individuals with regular income who want to pay their debts but are unable to do so in a timely manner.
Principal Residence
Under current bankruptcy law, you can cram down the principle on a mortgage to fair market value. However, the mortgage cannot be modified if it is secured by your principal residence. But if the home loan is based on the home plus other collateral, you can modify the mortgage. The law does not allow lien stripping when your home is the only collateral. The bankruptcy court will generally allow you to cram down an upside mortgage if you have given other collateral in addition to the personal residence (e.g., office equipment) as collateral for the mortgage.
Cram Down
The cram down provision in a Chapter 13 bankruptcy proceeding allows you to split the upside down mortgage balance into two parts – secured and unsecured. The secured part is the current appraised value of the home. You must continue to pay the secured claim. The unsecured claim is the amount of debt in excess of the current value. Generally, you need not repay the unsecured claim in full.
Getting Legal Help
Consult with an experienced bankruptcy attorney. The attorney can study your case and let you know if you can save your home if your mortgage is upside down.
