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Bankruptcy opinions may change the law

Mississippi homeowners who are struggling to pay their mortgages might be interested in learning about a couple of bankruptcy court rulings in Ohio. When people file for Chapter 13 bankruptcy, they may be able to cram down second mortgages on their homes. The rulings also found that first mortgages may sometimes be crammed down as well.

A cramdown in Chapter 13 bankruptcy means that a second mortgage may sometimes be transformed into unsecured debt, meaning that the lien against the home will be destroyed. The homeowners are then able to concentrate on catching up their first mortgages during their court-approved repayment plans, which can help them to save their homes from foreclosure. At the end of the repayment period, the remaining unsecured debt balances are discharged, including the second mortgages on the home.

A cramdown only happens when a debtor is upside-down on his or her home to the extent that no part of the second mortgage is secured by the house. In two cases in Ohio, the bankruptcy courts also found that first mortgages could be crammed down or transformed into unsecured debt when the debtors owe more on their homes than they are worth. In the case of first mortgages, the cramdown is only on the amount that is owed above the fair market value of the home. A third ruling in Ohio found the opposite, however.

The Ohio opinions allowing first mortgages to be crammed down in bankruptcy could potentially change bankruptcy law everywhere. People who are unable to make their mortgage payments might benefit by talking to experienced bankruptcy lawyers to learn whether or not Chapter 13 bankruptcy might be an option for them. Chapter 13 bankruptcy might help people to stop foreclosure and other types of collection actions so that they can get back on their feet.

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