Traditionally, mortgage cramdown is not supported by the U.S laws regarding bankruptcy. But when they occur and are permissible, mortgage cramdowns can lower the principal amount of your loan or alter the interest rate. Also, other terms of your loan might change during a cramdown.
This process often affects creditors more than the property owner. It occurs under Chapter 13 bankruptcy where the borrower still has some assets left and must pay his or debts partially or in full within a given period. Note that Chapter 13 bankruptcy can help you keep your car, home, and other pieces of property. However, you must proceed through 3 to 5 years on a payment plan with the right agency.
Compensation for risk
Mortgage cramdown might move an unsecured debt lower in payment that that couldn’t be taken care of for many years. In case this debt falls off the credit, you may have less payments with your mortgage. The principle associated with the loan may change with the payments for the full 3 to 5 years of the bankruptcy process (Chapter 13).
Working with an experienced bankruptcy lawyer, according to The Benenati Law Firm, you can still retain your home after taking care of the loan principal during the period of 3-5 years. Besides, with your mortgage taken care of, the overall value of your property might not change.
Change on already existing loans
Keep in mind that mortgage cramdown may alter the loan principal and eliminate the second unsecured part if the debt to the point that your creditor will not get this money. This change in already existing loans might cause challenges until the money drops off the credit or you finalized your Chapter 13 bankruptcy 3-5 years process.
Mortgage cramming, in this case, might not help you even if you will still retain your home once your Chapter 13 bankruptcy case is finalized. Also, mortgage cramdown and subsequent bankruptcy case are likely to take time, an issue that you cannot fix easily.
During the process, the judge will require the bankruptcy agency to handover the available income to your creditors. This will occur for 3 years to five years and helps repay as many of your debts as possible. One of the major reasons only 25% of people filing for bankruptcy go through Chapter 13 bankruptcy is that the liquidation associated with Chapter 7 bankruptcy offers more money to creditors.
With a cramdown, you (the property owner) can have a breathing space with fewer payment to the mortgage lender. With other debts sanctioned off to lower importance in the repayment, you will end up with fewer financial issues in repaying your creditors within a period of three to five years.
Generally, bankruptcy and mortgage cramming are complicated processes. To handle them effectively, you need to work with a good bankruptcy lawyer. He or she can help you understand the most viable option in each situation and handle all legal issues on your behalf.