If the principal balance of your first mortgage is more than the appraised value of your home you may be able to eliminate your second mortgage in a chapter 13 bankruptcy through a procedure called a “cramdown.” In this procedure your second mortgage is acknowledged as being wholly unsecured and is treated the same as the rest of your unsecured debt. For most chapter 13 debtors this means you only pay back a fraction of what you owe on the second mortgage over a period of 3-5 years.
This is accomplished by bringing an adversary proceeding in which you submit an appraisal of your home showing the value to be less than what is owed on the first mortgage. In most cases the debtor is successful. The bankruptcy Judge makes the determination that the debt is unsecured and at the end of the bankruptcy your second mortgage is paid off.
This type of “cramdown” may or may not be available to Debtors who have previously filed a Chapter 7 Bankruptcy case and where the debt would not be dischargeable in the pending Chapter 13 case as a result of the timing of the filing of the second case.
The relevant case law relating to this issue is split. In the Eastern District, Judge Trust and Judge Stong have held that although a debtor is not eligible to receive a discharge, such debtor may still void a lien held by a wholly unsecured creditor and treat it as unsecured. See In re Miller, 462 B.R. 421 (Bankr. E.D.N.Y. 2011) and Wong v. Green Tree Servicing, LLC, ___B.R.___, 2013 Bankr. LEXIS 982 (Bankr. EDNY. 2013,respectively. In the Wong case, the Judge Stong held that “…Section 1325(a)(2) does not prevent the Debtor from confirming a plan that provides for the avoidance of the liens securing the Defendants’ claims pursuant to Section 1322(b)(2).”
Judge Grossman however, has held that a debtor who is not eligible to receive a discharge was not permitted to void a lien held by a wholly unsecured creditor. See Orkwis v. MERS, 457 B.R. (Bankr.E.D.N.Y. 2011). Recently Judge Feller, at a hearing in the case of Arshad Slam issued an oral opinion from the bench also holding that a wholly unsecured junior lien cannot be voided where the debtor is not entitled to a discharge as a result of having recently filed and received a discharge in a prior Chapter 7 case..
The 4th Circuit Court of Appeals recently ruled that such a lien under such circumstances may be stripped off. “Although BAPCPA clearly tipped the bankruptcy scales back in the direction of creditors, we find nothing in the Act to suggest that Congress intended to bar lien-stripping of worthless liens in Chapter 20 proceedings. This, we conclude, is the most sensible reading of a complex statuatory scheme that admittedly abounds with arbitrary distinctions.” ( Branigan and TD Bank N.A. v. Davis (In re Bryan M. and Carla D. Davis), 2013 WL 1926407 (4th Cir. 5/10/13).
However, you can always get a free consultaion from the Law Office of Ronald D. Weiss, Esq. Please call to explore options for Long Island bankruptcy as to mortgage cram down 631-271-3737