Mortgage cramdowns = no panacea

[edna_mode]

Megan McArdle wrote an analysis in _The Atlantic_ on how Chapter 13 bankruptcies (which would be the framework under which cramdowns could be accomplished) tend to fail, and thus is not a priority for legislative energy:

http://www.theatlantic.com/business/archive/2010/08/mortgage-cramdowns-are-no-panacea/61385/

Thought it would be interesting to see what Piggs did with her point-by-point analysis. Geek on!

[Kingside]

The article states most of the usual arguments that the lender side tends to make in opposition to allowing cram downs in chapter 13 cases. Those are nothing new.

I agree with the statement that cram down provisions could only be feasable in the context of some broader bankruptcy reform for different reasons then she states.

Under current law, wholly unsecured junior mortgages can be stripped away and put into the unsecured classification (meaning little or no pay out) when approving chapter 13 plans. But under current law, a debtor may proceed under chapter 13 only where the debtor’s unsecured debts total less than $336,900.

So what you see now is that debtors are in a Catch 22. Yes, they are permitted to strip away junior liens as unsecured at the conclusion of their plan where the property has tanked under chapter 13, but often as soon as they elect to do so their unsecured debt exceeds $336,900 and they no longer qualify for chapter 13 relief and their case gets dismissed.

Unless this limitation was increased (a new and different legislative battle) allowing senior liens to be crammed down would result in the same problem. Chopping a portion of 1st lien debt into unsecured status would often result in too much unsecured debt to qualify for Chapter 13 relief.

[Kingside]

The article states most of the usual arguments that the lender side tends to make in opposition to allowing cram downs in chapter 13 cases. Those are nothing new.

I agree with the statement that cram down provisions could only be feasable in the context of some broader bankruptcy reform for different reasons then she states.

Under current law, wholly unsecured junior mortgages can be stripped away and put into the unsecured classification (meaning little or no pay out) when approving chapter 13 plans. But under current law, a debtor may proceed under chapter 13 only where the debtor’s unsecured debts total less than $336,900.

So what you see now is that debtors are in a Catch 22. Yes, they are permitted to strip away junior liens as unsecured at the conclusion of their plan where the property has tanked under chapter 13, but often as soon as they elect to do so their unsecured debt exceeds $336,900 and they no longer qualify for chapter 13 relief and their case gets dismissed.

Unless this limitation was increased (a new and different legislative battle) allowing senior liens to be crammed down would result in the same problem. Chopping a portion of 1st lien debt into unsecured status would often result in too much unsecured debt to qualify for Chapter 13 relief.

[Kingside]

The article states most of the usual arguments that the lender side tends to make in opposition to allowing cram downs in chapter 13 cases. Those are nothing new.

I agree with the statement that cram down provisions could only be feasable in the context of some broader bankruptcy reform for different reasons then she states.

Under current law, wholly unsecured junior mortgages can be stripped away and put into the unsecured classification (meaning little or no pay out) when approving chapter 13 plans. But under current law, a debtor may proceed under chapter 13 only where the debtor’s unsecured debts total less than $336,900.

So what you see now is that debtors are in a Catch 22. Yes, they are permitted to strip away junior liens as unsecured at the conclusion of their plan where the property has tanked under chapter 13, but often as soon as they elect to do so their unsecured debt exceeds $336,900 and they no longer qualify for chapter 13 relief and their case gets dismissed.

Unless this limitation was increased (a new and different legislative battle) allowing senior liens to be crammed down would result in the same problem. Chopping a portion of 1st lien debt into unsecured status would often result in too much unsecured debt to qualify for Chapter 13 relief.

[Kingside]

The article states most of the usual arguments that the lender side tends to make in opposition to allowing cram downs in chapter 13 cases. Those are nothing new.

I agree with the statement that cram down provisions could only be feasable in the context of some broader bankruptcy reform for different reasons then she states.

Under current law, wholly unsecured junior mortgages can be stripped away and put into the unsecured classification (meaning little or no pay out) when approving chapter 13 plans. But under current law, a debtor may proceed under chapter 13 only where the debtor’s unsecured debts total less than $336,900.

So what you see now is that debtors are in a Catch 22. Yes, they are permitted to strip away junior liens as unsecured at the conclusion of their plan where the property has tanked under chapter 13, but often as soon as they elect to do so their unsecured debt exceeds $336,900 and they no longer qualify for chapter 13 relief and their case gets dismissed.

Unless this limitation was increased (a new and different legislative battle) allowing senior liens to be crammed down would result in the same problem. Chopping a portion of 1st lien debt into unsecured status would often result in too much unsecured debt to qualify for Chapter 13 relief.

[Kingside]

The article states most of the usual arguments that the lender side tends to make in opposition to allowing cram downs in chapter 13 cases. Those are nothing new.

I agree with the statement that cram down provisions could only be feasable in the context of some broader bankruptcy reform for different reasons then she states.

Under current law, wholly unsecured junior mortgages can be stripped away and put into the unsecured classification (meaning little or no pay out) when approving chapter 13 plans. But under current law, a debtor may proceed under chapter 13 only where the debtor’s unsecured debts total less than $336,900.

So what you see now is that debtors are in a Catch 22. Yes, they are permitted to strip away junior liens as unsecured at the conclusion of their plan where the property has tanked under chapter 13, but often as soon as they elect to do so their unsecured debt exceeds $336,900 and they no longer qualify for chapter 13 relief and their case gets dismissed.

Unless this limitation was increased (a new and different legislative battle) allowing senior liens to be crammed down would result in the same problem. Chopping a portion of 1st lien debt into unsecured status would often result in too much unsecured debt to qualify for Chapter 13 relief.

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