Reducing Secured Debt - Chapter 13 Bankruptcy
Under the new chapter 13 bankruptcy law you can now reduce the level of secured debts to the level of the collateral before you file.
For example, if you owe $15,000 on a car that's only worth $10,000, you can pay off the $5,000 deficit using payments you make during the duration of your chapter 13 payment plan (either three or five years).
This is called a "cram down" that allows you to keep your car and other secured assets while you go through a personal bankruptcy.
Unfortunately this kind of thing can't currently be used to save a home or land that is under a mortgage. Ask your lawyer about the latest legal decisions on mortgage cram downs as from time to time our legislators in Washington have discussed the option.
But under some circumstance you may be able to get some relief and hold onto your home by "stripping off" other mortgages. Some courts have helped homeowners who are "under water", that is those who have no equity in their homes because the resale price has fallen to the level of the outstanding first mortgage or even below.
In some cases the chapter 13 law has allowed the courts to strip off the 2nd and 3rd mortgages and classify them as unsecured debts which can then be included in your chapter 13 payment plan. In some cases these other mortgages have been excluded from the chapter 13 filing and in other cases only portions of the outstanding balances were included in the overall plan. As always - ask your attorney about this before you file.
