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The Cram Down.
If a person filing a Chapter 13 bankruptcy owns a house which is worth less that the mortgage on that house, Section 1322(b)(2) gives the court the ability to reduce the balance of the mortgage to the value of the house. This could result the balance as well as the mortgage payments being reduced, as well as back payments being eliminated. That is, unless the house is the person's principal residence.
A change in the works.
Legislation has been repeatedly introduced in Congress to remove this limitation, and allow the mortgage on the principal residence of the person filing Chapter 13 to also be modified. Each time such bills have failed.
With the Democrat majority in the 111th Congress, and the mortgage crisis starting in 2008, the likelihood of the passage of such legislation is much more likely.
President Obama's position.
In his speech of February 18, 2009, President Obama stated, "My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value as long as borrowers pay their debts under court ordered plans." [Full text of President Obama's speech.]
On March 6, 2009 the House passed the Helping Families Save Their Homes Act of 2009 [H.R.1106]. The preceding link is to the full text of that bill.
This page was last revised: 03/06/09