In January 2009 several mortgage cram down bills were introduced into Congress to give the bankruptcy judges new powers to cram down unconventional mortgages.  Prior to 2005 autos were subject to cram downs but in 2005 auto cram downs were eliminated.  

A cram down is the adjustment of a mortgage rate and/or the mortgage principle in a bankruptcy case which crams down the mortgage to a reasonable interest rate. 

If the interest rate mortgage was 9% the first mortgage would cram down to a lower rate of about 4% over the prime rate to 6% or 5%.   A secomd mortgage may be slightly higher.  

In a principle cram down, if the mortgage was 150,000 and the property was only worth 110,000 the mortgage principle would be adjusted to 110,000.   

Most of the cram down bills only allow a cram down of the mortgage rate or principle balance in a Chapter 13.   In order to obtain the cram down rate the home owner must complete the Chapter 13 payments.   We have been able to strip off a second mortgage in Kentucky cases since 2000 where the second mortgage is essentially an unsecured note and there is no equity for the second mortgage in Chapter 13 cases.  However again the payments must be completed.      

For a long time some mortgage companies would negotiate interest rates or principles in Chapter 7 cases to avoid foreclosures.   Cram downs force lower mortgage rates or principle balances on the mortgage company.  

Cram downs avoid the Debtor losing the home just to avoid a bad mortgage rate or a negative equity position.   It benefits both the Debtor and the Morgage company which would not get full value of the property if it were auctioned.  It also protects  surrounding propery owners who would have their property value lowered from the auction sale price of the home.  

Our Chapter 7 and 13 bankruptcy manual explains filing bankruptcy in Kentucky. 

  Chapter 7 Kentucky  Chapter 7 Louisville

Chapter 7 Indiana