Cram Down Or Strip Off Options For Those Beneath The Water Line in NJ
- September 24, 2013
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By filing for Chapter 13 bankruptcy there may be some relief to those who face this situation in the form of a process called a “cram down” or “strip off.” Ultimately, these options may provide a debtor with the chance to reduce or eliminate the payments that he or she owes on their secured mortgages and eliminate liens on their homes. In today’s economic climate, an increasing number of homeowners are facing the grim realization of foreclosure. For most people this is an extremely upsetting circumstance, but there are options to help people keep their homes in the face of foreclosure. A “cram down” is a process where the court may reduce certain secured debts to the market value of the collateral that secures that debt and thus reduces the amount that a debtor must repay. This sounds complicated, but consider the following example for clarification. A person buys a brand new car for $30,000, by taking out a loan for $45,000 (which includes interest) to be paid back through specified monthly repayments. After a few years, this person files for Chapter 13 bankruptcy, and still owes $30,000 for the car even though the fair market value of the car has declined to $18,000. Under a Chapter 13 repayment plan, the court could “cram down” the loan to $18,000 thus reducing the amount that the debtor has to pay back each month, thus allowing the debtor to more easily make mortgage payments for his or her home. A “cram down” is typically only available for certain secured debts such cars, furniture, jewelry, computer, and rental homes (not primary residential homes). Sometimes the mortgage balance that people owe on their residence exceeds the current market value of that home. If this is the case, it is said that the home is “under water.” Under Chapter 13, a “strip off” may be an option to modify mortgage repayment amounts by “stripping off” or discharging the balances owed on second and third mortgages and reducing the homeowner’s overall mortgage balance. To accomplish this, a court may reclassify junior mortgages from a secured debt to an unsecured debt thus allowing these debts to be completely discharged or dramatically reduced. This results in an overall reduction in the mortgage balance that needs to be repaid which could, in turn, determine whether a homeowner can keep his or her home despite the threat of foreclosure. If you are facing bankruptcy and have investments or other property to which you believe a strip off or cram down may be applicable, you should consult an experienced attorney to protect your rights. For more information regarding cram downs, strip offs, debt reduction, foreclosure or other matters relating to Bankruptcy in New Jersey visit TheNJBankruptcyAttorney. This blog is for informational purposes only and not intended to replace the advice of an attorney.