Bankruptcy “Cram Downs” for Commercial and Residential Loans

The concept of Personal Bankruptcy “Cram Downs” was established in the  “Helping Families Save Their Homes Act ” in 2009.

The Helping Families Save Their Homes Act allow bankruptcy judges to “cram down” the second mortgage on investment properties, second homes and also modifying the first mortgage.  Contrary to the rule, judges in California, Texas and Louisiana are “cramming down” second mortgages and reducing principal balances on primary residences, which the Helping Families Save Their Homes Act does not permit.

How It all Works

The bankruptcy judge reduces the first mortgage amount to the fair market value of the home; the remaining balance of the negative equity will convert into unsecured debt, meaning it’s no longer a secured debt.

Speculators foresee a rise in personal bankruptcy filings for 2011, more “cram downs” and principal reductions with bankruptcy judges.

Chapter 11 Bankruptcy Cram Downs Work Differently

First of all, commercial cram downs must be approved with all existing creditors and you must suffice every provision required by your Chapter 11 filing.

In a Chapter 11 Bankruptcy cram down, the entity must request the cram down, not like a personal bankruptcy. A commercial cram down is not guaranteed, the Chapter 11 Bankruptcy rules require fairness to all creditors.

My recommendation is not to file a Chapter 13 and sell your property with a reputable real estate agent in your area. Your chances of obtaining new credit, with a bankruptcy that is reporting on your credit, will affect all future loan application approvals, besides high car insurance rates.

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Sources:
Lawyers.com
DSNews
Whitehouse.gov
Strategic Default Ramifications

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