Is a cram down allowed for my home mortgage in a Chapter 13 bankruptcy filing?

Answer: In Chapter 13, you cannot “cram down” a mortgage on your primary residence. A bankruptcy court may cram down certain secured debt when the amount of the loan exceeds the actual value of the property. A cram down is available for personal debt secured by collateral if the debtor purchased the property one year prior to filing for bankruptcy. It is also available for a car that was purchased 30 months before filing for bankruptcy or a mobile home if it is considered personal property under state law. And you might be able to cram down loans on investment real estate.

A cram down reduces the amount the debtor will owe on a secured loan. For example, if the debtor purchased a car at least 30 months before filing for bankruptcy and the amount the debtor owes on the car loan is more than the current value of the car, the bankruptcy court can reduce the car loan to the actual value of the car. The remaining portion of the original loan becomes unsecured debt. (To learn more about how cramdowns work, see How a Cram Down Works in a Chapter 13 Bankruptcy.

Although a debtor cannot cram down a mortgage on a home, it is possible to eliminate certain home mortgage debt. A bankruptcy debtor that files for Chapter 13 will not be able to reduce a first mortgage. However, a debtor may be able to “strip off” a lien secured by a second or third mortgage if it is in excess of the current value of home. This means that if the home is worth the same amount or less than the first mortgage, a second or third mortgage is no longer secured by the home. Consequently, it becomes unsecured debt. To learn more about how this works, see How to Strip a Second Mortgage or HELOC in Chapter 13.

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