Mortgage Cram-Downs On Investment Property In Chapter 13 Bankruptcy

Chapter 13 permits debtors to “cram down”, or reduce, the amount of a mortgage on investment property to the property’s current market value. A client recently asked me if the Chapter 13 cram down eliminates past-due mortgage payments and if the “cram down” can include a reduction of the mortgage interest rate in addition to the mortgage balance.

My experience is that a Chapter 13 plan will not eliminate past-due payments but can add the arrearage to the loan balance after cram-down. The Chapter 13 does not reduce mortgage interest rates unless the rate is unreasonably high, such as interest rates typically associated with “hard money” loans from private lenders.

Remember that Chapter 13 cram-downs of investment property does not permanently strip part of a mortgage unless the debtor refinances the property during the course of the Chapter 13 plan. The investment property strip does not continue after Chapter 13 discharge.