I will be filing chapter 7 ro 13 and want to cram down what is owed and mortagage of an investment property. What is cramming and how exactly does it work?
Chapter 11 Bankruptcy Attorney
Without knowing the specifics of your sitution, it is hard to know whether a 7 or 13 is appropriate, or whether it is a Chapter 11 that you need to be considering instead. Those questions will depend largely upon how much you owe and how long you are going ot need in order to resolve the debt owed on your properties.
But getting to the question of cram downs, there is the concept of a "cram down" and a "strip off." Let's say you have an investment property worth $200K, and you owe $300K on your first mortgage and have a $100K second mortgage. Because none of the second mortgage is actually secured by any value, it is ripe to be entirely removed or "stripped off". With respect to the first mortgage, you can "cram down" the first mortgage to the value of the home. Note that in Chapter 7 cases you will be left ot negotiate a payout with your banks that they are under no obligation to accept, and that you cannot force on them (with the exception of the strip off, which is, for the moment, a viable option in Florida due to a case that came out in May, 2012). In Chapter 13 cases you are left resolving the balance of the debt in 60 months if the bank doesn't allow you to modify the term over a longer period. Again -- not something you can force beyond 60 months, and the payments required will likely make you case not feasible (and therefor unable to be confirmed). However in Chapter 11, you have the ability to not only strip and cram down, but also to propose plan payments over commercially reasonable periods of time -- which can be upwards of 20 to even 30 years depending upon the lender.
The bottom line: you should speak to competent counsel about these issues because there are a tremendous amount of other items that can affect your case and can mean success or failure depending upon what they are. You can speak to our firm if you like as we handle cases in the Fort Lauderdale area -- but whether you call us of not, defintely speak to someone because what you are proposing is likely do-able, but also much more complex than most people realize.
17 lawyers agree
I will supplement Attorney Merrill's excellent and comprehensive response only by making reference to a case that is under review which would allow the "strip off" of a second mortgage in a Chapter 7. If you do not have a 2nd on the investment property, then the McNeal case has no impact whatsoever. If you do, or you have a 2nd on your homestead residence, then that case may have influence on whether you file under a Chapter 7 or 13. The explanation of the application of the case would take a small forever to write out, but you can review it yourself to obtain an overview. The case was decided in the 11th Circuit Court of Appeal in May, 2012
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Patent Application Attorney
"Cramming" is the term we use to denote the lowering of a debt that is owed. As others have explained in more elaborate terms, you have almost no hope of cramming down a mortgage unless the planets are aligned in your favor in a way that very rarely happens.
I am not one of those who says "see an attorney" to every question, but to cram down a mortgage successfully, but an initial consultation with a bankruptcy attorney will answer the question quickly.
I've been in bankruptcy for five years, and never personally seen a mortgage that could be crammed down in a C13. On the other hand, I HAVE crammed down in a Chapter 11, but those are very complex and not trivial.
I'm not your attorney; my answer to your question includes assumptions. If you want me to be your attorney, I'm easy to find.
You have excellent advice here from Mr. Merrill. However, it sounds to me like you might be seeking this advice in the belief you can handle it yourself. Don't try that! It's hard enough for attorneys. Seek competent counsel.
The law is complicated and although the facts expressed may seem to be all that is relevant, there may be many other important facts to consider. Also, the law is constantly undergoing change, so what may be correct today, may not be accurate tomorrow. Only a full consultation with an attorney experienced or knowledgeable in the specific legal subject matter is likely to result in the optimal course of action. My practice has entailed more than a 30 year span of many real estate, personal property, and bankruptcy issues. Find out more about me at: FloridaPropertyLitigation.com.