When Virginia residents file for Chapter 13 bankruptcy, they may have the ability to modify their mortgages. However, if the lien is a primary lien on a primary residence, the debt is generally fully secured even if the homeowner is underwater on the loan. This is usually not the case if a property is a vacation or investment property. In such a scenario, the property owner could be entitled to a “cram down.”
What this means is that the secured portion of the loan represents its current market value. Any balance left remaining can be converted to unsecured debt. Recent court decisions may give debtors the ability to do this on their primary residences as well. In a decision made by an Ohio judge, a mortgage held by SunTrust was ruled more than just an interest in the property. Therefore, no protection against a mortgage modification existed.
Opinions throughout the state were mixed after the original ruling came out. One judge agreed with the findings in the SunTrust case while another disagreed with the decision and did not confirm a plan with a primary residence cram down. In most cases that involve a cram down, the matter is settled or otherwise resolved to the liking of all parties involved.
Those who need relief from overwhelming debt may find it by filing for bankruptcy. In a Chapter 13 case, unsecured debts are discharged at the end of a repayment period that lasts for three or five years. It may also be possible to renegotiate the terms of a secured loan such as a mortgage or auto loan. Debtors could consult with an attorney to learn about the other benefits of filing for bankruptcy.