Long Island Bankruptcy, Cramming Down Second Mortgages In Chapter 13

Long Island Bankruptcy debtors are often interested in eliminating their obligation to pay a second mortgage especially when it is totally upside down and not supported by any equity in the house. Given the recession that hit the our real estate market, Long Island Bankruptcy cases can often cram down a 2nd mortgage.
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.
For Long Island Chapter 13 bankruptcy debtors, this type of “cramdown” may or may not be available to Debtors who have previously filed a Chapter 7 Bankruptcy case. That is because according to some but all Long Island Bankruptcy Judges, a Chapter 13 case following a Chapter 7 case would not allow the discharge of debt that was already discharged.
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, 23 CBN 495, 2013 WL 1088620, Bankr. LEXIS 982 (Bankr. EDNY. March 14, 2013) ,respectively.
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.
Therefore, when considering filing a Chapter 13 case after first discharging debt in Chapter 7, one must consider if you have to do a cramdown of a second mortgage. If you would need to do so, you may be better off not filing in Long Island Chapter 7  before filing the Chapter 13 case.
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.