Here’s an interesting bankruptcy court decision about stripping down a partially unsecured mortgage on an investment property in a Chapter 13 case.
Chapter 13 permits a debtor to cram down the balance of a first mortgage on an investment property to the current market value and thereafter treat the mortgage as secured up to the property value and as a general unsecured claim of the mortgage amount above the current property value. At the end of the Chapter 13 plan the debtor ends up with a property having a reduced first mortgage. Chapter 7 bankruptcy does not permit debtors to cram down first mortgages.
In this particular case, a debtor ( husband) owned an investment property jointly with his wife. Both spouses were on the first mortgage. The debtor filed a Chapter 13 bankruptcy and moved to cram down a first mortgage on an investment property. His wife did not join in the Chapter 13; she was ineligible for a Chapter 13 discharge because she had recently filed Chapter 7. The prior Chapter 7 made the wife ineligible for a subsequent Chapter 13 discharge in this case.
The court asked : Can one spouse who owns an investment property as tenants by entireties cram down a secure first mortgage on non-homestead property in a Chapter 13 when the other spouse is not a co-debtor in the same Chapter 13 case, or must both spouses file jointly and both obtain a Chapter 13 discharge for the first mortgage relief.
The court said that this husband could not cram down the mortgage on the jointly owned property without the wife filing as a co-debtor and both spouses being eligible for a Chapter 13 discharge.