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What is a “Cramdown”?

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If a person filing a Chapter 13 bankruptcy owns a house which is worth less that the mortgage on that house, Section 1322(b)(2) of the bankruptcy code gives the court the ability to reduce the balance of the mortgage to the fair market value of the house.  This so-called “cramdown” has two main benefits: It reduces the balance of the home loan, which then reduces the borrower’s mortgage payments.

So why aren’t more people filing for Chapter 13 today?  The answer is that under current bankruptcy law, a court can “cramdown” the mortgage on any house, except a house that is the person’s principal residence.  Filing Chapter 13 is therefore beneficial only to those people who own multiple homes.  Ironically, it’s not the people who own multiple homes that need help today.

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Hamid Jabbar

Hamid Jabbar

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