Cramdowns are not allowed for principal residences has long been the law of the land. Until now.
The Fourth Circuit held that where the payment on the debtor’s home mortgage falls before the last payment under the Chapter 13 plan then the exception to the general prohibition on modifying loans secured by a principal residence applies.
That provision allows modification and bifurcation if the last payment on the loan is due before the date on which the final payment under the Chapter 13 plan is due.
Mortgages that fit into this category can be bifurcated into secured and unsecured components. More importantly, debtors can cram down the unsecured component.
The savings for the borrower, in this case, are unbelievable! Outside of the case, he had to pay back $131,000 at 6%. But if the bankruptcy court confirms his plan on remand, he only has to pay $41,132.19 at 4.5%. Wow.
No doubt the lender will appeal and the question is whether the Supreme Court will take up the issue.
