Investment Property "Cram Down" in Chapter 13 Bankruptcy

Cook County Attorneys Helping People to Modify Their Investment Property Mortgages During Bankruptcy

One distinct advantage of Chapter 13 is your right to "cram down," or reduce, your mortgage balance. You can't modify a mortgage secured by your principal residence, but you can modify mortgages on other types of properties, including investment properties.

How Does the Chapter 13 Cram Down Work?

Section 506(a) of the Bankruptcy Code says that a mortgage lender's claim is a secured claim only to the extent of the fair market value of the property. Any balance beyond that is unsecured and can be "crammed down," so to speak. If you're wondering whether this is an option for you, call us at 1-888-542-1900 or contact us online for a freeconsultation.

Example of a Chapter 13 Cram Down

In Chapter 13, you propose a plan to reduce the balance of an unsecured mortgage on a property that's not your principal residence to its fair market value, reducing or eliminating the unsecured balance that made your property "underwater" to begin with.

Say you own a duplex and rent it out. It's also not your home; you don't live there. The mortgage on your duplex is $250,000, but the fair marketvalue is $100,000.

The mortgage lender's claim can be split into one $100,000 secured claim (the fair market value) and one $150,000 unsecured claim (the bloated balance).

Now you pay on the new $100,000 mortgage and get debt relief on the $150,000 "crammed down" portion, paying pennies on the dollar if that's all you can afford over the three- to five-year time period of the Chapter 13 plan.

Call the Chicago Bankruptcy Attorneys of Ledford, Wu & Borges, LLC

It's important to keep in mind that a cram down will only work if and when you complete the Chapter 13 plan. If your case is dismissed or converted to Chapter 7, your mortgage will stay as it was. We'll help you navigate safely. Send us an email or call 1-888-542-1900 for a freeconsultation with a dedicated consumer bankruptcy lawyer.