Can I Cram Down a Mortgage in Chapter 13?

Although cramdowns in Chapter 13 are more common for auto loans, it’s possible to cram down a mortgage depending on whether or not the property in question is an investment property. Chapter 13 bankruptcy filers are prohibited from cramming down mortgages on their personal residences, but they may be permitted to cram down a mortgage on an investment property.

What Is a Cramdown in Chapter 13?

A cramdown in Chapter 13 bankruptcy refers to the reduction of the principal balance of a loan to the value of the property securing it.

Cramdowns are most often used to deal with auto loans at least two years old because cars typically depreciate and quickly lose their value. When the value of the property securing a loan drastically falls below the principal left on the loan, a cramdown can take this loss into account and reduce the principal to the property’s current market value.

Cramming Down an Investment Property Mortgage

Only mortgages on investment properties can be crammed down in Chapter 13 bankruptcy. Even so, those with significant balances left on these mortgages might wish to consider alternatives to a cramdown.

A cramdown on an investment property mortgage might only make sense when someone has a moderate balance. This is because even if a cramdown reduces the principal on the property’s mortgage to its market value, the principal may still be too high to pay off within three to five years, as required by the Chapter 13 plan.

Contact Us for More Information

Consult with a Chapter 13 bankruptcy lawyer to explore your options in Chapter 13 bankruptcy and alternative ways to deal with debt. We can help you find the right way to deal with your debt when you realize you’re having trouble paying the bills.

Request a consultation with our legal team at Buchalter & Pelphrey Attorneys At Law by contacting us online.