In a chapter 11 bankruptcy can I cram down a first mortgage?
Los Angeles, CA |
I have a lot of under water real estate? Some of it is personal and some business. In a chapter 11 bankruptcy can I force the banks to reduce the values of the loans to the fair market value of the property?
Cram downs on residential properties used as a home and secured by a mortgage are typically not allowed a cram down in Chap. 11 (see secetion 1123(b)(5)). Investment properties can be crammed down to current market value under a Chap. 11, but you will often get into arguments with the banks over what the current value is. Expensive appraisals and litigation are frequently required.
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I hope you are talking with a local bankruptcy attorney who handles chapter 11. Majority of bankrutpcy attorneys are consumer BK attorneys handling chapter 7 & chapter 13, but not necessarily 11s. Chapter 11, I would venture to say is practically impossible to handle without an attorney so talk to an expert in your local area who handles those as they will be able to offer a lot more insight then you can gain from here.
First, "cram down" in Chapter 11 means something totally different than what you are wanting to do.
What you want to do is bifurcate secured loans into secured/unsecured portions.
Assuming you can get the plan confirmed, here are some things to think about:
Home Mortgages: Must cure defaults using a lump sum of cash, cannot modify the loan and must pay it like normal. 1123(b)(5).
Non-Home Mortgages: Usually there is a valuation hearing/stipulation as to the value of the property. Then you can pay the secured portion like you refinanced it and the unsecured portion gets paid some fraction over the next 5 years at no interest.
Whether a loan is a "home mortgage" or not is complicated but usually turns on what it says on the note.
Yes, with the exception of the real estate, if any, that is your prinicpal residence. The real estate can be valued pursuant to section 506 of the bankruptcy code. The claim will be divided into two claims, one to secured by the property to the extent of the market value and an unsecured claim for the difference. Another advantage for doing this is that no interest, attorney's fee or other charges contained in the contract will accrue since these items can came only out the equity in the real estate, which according to you there is none. A creditor can elect to reverse the situation pursuant to section 1111(b) of the code, but has stife consquences for the creditor and usually does not happen.