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CRAMDOWN & LIENSTRIPPING IN BANKRUPTCY
Bankruptcy courts have the power to write-down the value of assets to their current value, but not for personal residences.
If, however, you have a 1st and a 2nd mortgage, the bankruptcy court may "strip" the 2nd mortgage away if there is no security in it.
For example, if a home is worth $200,000 and the 1st mortgage is $200,000 and the 2nd mortgage is $100,000; the bankruptcy court has the power to declare the 2nd mortgage unsecured and pool it with credit card debt, etc.
On the other hand, if on that same $200,000 home, the 1st mortgage was $175,000 and the second was $125,000, the 2nd would have $25,000 of security in the home and the bankruptcy court could not remove the secured lien (if it's a principal residence).
Proposed changes in the bankruptcy law would allow the bankruptcy court, in the 2nd example above, to reduce the 2nd mortgage to $25,000 and adjust the rate and other terms on both mortgages.
The proposed legislation, if enacted, may be a huge relief for many struggling homeowners.
Keep watching the Housing News section of this site and other sources for more information.
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