Removing Liens and “Cramming Down” Liens (Mortgage, HELOC, HOA, Tax, Judgment) in Bankruptcy
This guide discusses removing and lowering the balance of various types of liens through Chapter 11 and Chapter 13 Bankruptcy cases.
CRAM DOWNS & LIEN STRIPPING (REMOVAL)*Cramming down* refers to reducing the amount of the lien to the market value * in other words, if a mortgage balance is greater than the market value of a property, the balance can be reduced down to the market value amount. Cramming down of liens can be done through Chapter 11 on properties that are not a primary residence. Liens that may be crammed down include mortgage, HELOC (home equity line of credit), HOA (Homeowners* Association), and judgment.
In a Chapter 11 bankruptcy, you can also remove fully unsecured liens from your rental properties (i.e. the balance owed on higher-priority liens must fully exceed the market value of the property).
In a Chapter 13 bankruptcy, you can remove fully unsecured liens from your primary residence. This includes junior mortgages (including HELOC), HOA, tax, and judgment liens.
BANKRUPTCY REAL PROPERTY VALUATIONSReal property valuations are used in Chapter 13 and Chapter 11 bankruptcy proceedings to determine if liens are unsecured, undersecured, or secured, and thus whether or not they can be removed or crammed down. Valuations are also used to determine if the debtor (the filing party) falls within the debt eligibility limits*if a lien is fully unsecured, it will go toward the unsecured debt limitation, and if it is fully secured or partially secured, it will go toward the secured debt limitation limit.
Property values change constantly, making a critical question, when does the court value the property for the purposes stated above? Unfortunately, due to a lack of clarity in the bankruptcy code, the time for determining when a property is valued varies by Judge.
- In re Abdelgadir, 455 B.R. 896 (9th Cir. BAP 2011). The United States Bankruptcy Appellate Panel of the Ninth Circuit determined that the valuation date for a secured claim was the petition date.
- In re Crain, 243 B.R. 75 (Bankr. C.D. Cal. 1999). Judge Vincent P. Zurzolo of the Central District of California stated: *I conclude that the appropriate date of valuation for the Subject Property is the *effective date of the plan* or ten days after entry of the order confirming the plan, provided no timely appeal has been made.*
- Judge Neil W. Bason of the Central District of California has previously had a *policy of using current value* or in other words of valuing the property as of the current date (the date of the order being requested).