Maryland is in the 4th Circuit, which recently overruled a decades-old precedent and now recognizes that debtors can cramdown mortgages secured by a personal residence.
The plain text of 11 U.S.C.S. § 1322(c)(2) authorizes modification of such claims, not just the payment schedule for such claims, including through bifurcation and cram-down. Accordingly, the Fourth Circuit overrules its decision in Witt v. United Cos. Lending Corp., 113 F.3d 508 (4th Cir. 1997).
Hurlburt v. Black, 925 F.3d 154, 156 (4th Cir. 2019)
In this case, Hurlburt filed a proposed Chapter 13 repayment plan, seeking to bifurcate the creditor’s claim into secured and unsecured components. The creditor would hold a fully secured claim for $41,132.19, which amount Hurlburt calculated by subtracting a senior Brunswick County tax lien totaling $5,867.81 from the Property’s recently appraised value of $47,000. The remainder of the creditor’s claim would be treated as unsecured and receive no payment.
The 4th Circuit agreed Hurlburt’s plan was allowable under the law and he could separate the secured parts of the loan from the unsecured in chapter 13 plan. The unsecured part is treated just like any other unsecured debt such as credit cards and may be paid nothing.
As you can see, this is a very powerful tool for debtors who are underwater in their homes.
A debtor can reduce the mortgage to the current property value and pay just that portion through a chapter 13 plan while discharging the rest.
If your home is significantly underwater, a chapter 13 plan can be away to get rid of the unsecured portion of the mortgage.
