Debtors In Bankruptcy in Tampa Area May Pay Only The Actual Value Of Their Homestead In Bankruptcy Provided Their Mortgage Terminates Before Five Years
The 11th Circuit of the United States Court Of Appeals Ruled in American General Finance versus Richard W Paschen that the plain language of the Bankruptcy Code allows Debtors in Chapter 13 Bankruptcy to pay only the Secured Value or Fair Market Value of their Residential Property through the Chapter 13 Plan.
The Unsecured portion of the Mortgage, which is the difference between the balance of the Mortgage and the Value of the Home, is treated as any other Unsecured Debt or Creditor, in the Chapter 13 Bankruptcy. This Decision by Judge Wilson applies only if the Mortgage terminates before the five year Chapter 13 Plan.
For example, if a Debtor has a Homestead in Florida that has a balance of $100,000 and the same property has a Fair Market Value of $30,000, and the Mortgage is a Short Term Loan of four years, the Debtor may Cramdown or pay only the Secured amount of $30,000 through the Chapter 13 Bankruptcy over a period of five years. The Unsecured portion of the Mortgage, which is $70,000, is treated as any other Unsecured Creditor in Bankruptcy. If the Unsecured Creditors are to receive no monies under the Chapter 13 Plan, then the Unsecured portion of the Home or Residential Property is also entitled to no monies.
This Cramdown of Residential Properties is permitted pursuant to Bankruptcy Code Section 1325(a)(5).