Yea, then Nay

In March, the House of Reps passed the descriptive Helping Families Save Their Homes Act. 234 reps said, yea and 191 said, nay. Alas, our bicameral legislature. When the Senate took its vote, only 45 said yea. So when asked, I tell my clients, nay: you can't cram down your mortgage debt.

What is a cram down?

A new loan is a shiny new Coca Cola can. When you've drunk your fill and crushed the can, that's depreciation. We're living in crushed cans, but paying for shiny ones. The cram-down concept permits you to lower principal balance on secured properties to current market value.

In bankruptcy, we can do that with personal property, such as vehicles. E.g. you buy a Dodge on a $20K loan. 3 years later, the Ram is worth $10K. But you still owe the lender $18K. A chapter 13 bankruptcy can convert the $18K high-interest debt to a $10K debt at 7% interest. To qualify for a car cram down, you'll need to have ridden those wheels more than 910 days. You can't defeat that instant car-lot-to-street-depreciation quite so quickly.

Through bankruptcy, mortgage cram-down would have righted upside-down mortgages. A $500K payoff on a $400K home would become a $400K mortgage.

Tune in next time for my credit card spiel.

References

Secondary
http://m.apnews.com/ap/db_7731/contentdetail.htm?contentguid=alVpefIV

Primary
http://docs.house.gov/rules/111_hr_housing.pdf

This blog is provided for limited information purposes. Seek legal counsel before taking any bankruptcy-related action or inaction.

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