West Case Update

Chapter 13 Bankruptcy Can Force Cramdown of Home Equity Loan

Description Appeals court held that under Chapter 13, bankruptcy could force the makers of a home equity loan to accept a cramdown, where the secured portion of the loan shrinks to the actual value of the equity in the home, not the amount of the entire loan.

Topic Bankruptcy

Key Words Chapter 13; Secured Loan; Cramdown

C A S E S U M M A R Y

Facts Two years after the Paschens bought a home they borrowed $12,377 from AGF, which secured the loan with the equity in their home (a home equity loan). Soon the Paschens filed for protection from creditors under Chapter 13. They submitted a plan that proposed modifying AGF's claim into a secured part and an unsecured part; that is, to bifurcate the loan. The secured part would be $2,752, which the Paschens claim represented the actual equity in the home. This is a "cramdown" where the secured claim is "crammed down" to the value of the securing collateral. AGF opposed the move, contending that a secured loan were exempt from such procedures. The court held for the Paschens; AGF appealed.

Decision
Affirmed. The Bankruptcy Code's antimodification provision permits Chapter 13 debtors to bifurcate undersecured, short-terms home mortgages into secured and unsecured claims. The unsecured claim is subject to a cramdown.

Citation In re Paschen, 296 F.3d 1203 (11th Cir., 2002)

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Chapter 13 Bankruptcy Can Force Cramdown of Home Equity Loan
Description	Appeals court held that under Chapter 13, bankruptcy could force the makers of a home equity loan to accept a cramdown, where the secured portion of the loan shrinks to the actual value of the equity in the home, not the amount of the entire loan.
Topic	Bankruptcy
Key Words	Chapter 13; Secured Loan; Cramdown
C A S E S U M M A R Y
Facts	Two years after the Paschens bought a home they borrowed $12,377 from AGF, which secured the loan with the equity in their home (a home equity loan). Soon the Paschens filed for protection from creditors under Chapter 13. They submitted a plan that proposed modifying AGF's claim into a secured part and an unsecured part; that is, to bifurcate the loan. The secured part would be $2,752, which the Paschens claim represented the actual equity in the home. This is a "cramdown" where the secured claim is "crammed down" to the value of the securing collateral. AGF opposed the move, contending that a secured loan were exempt from such procedures. The court held for the Paschens; AGF appealed.
Decision	Affirmed. The Bankruptcy Code's antimodification provision permits Chapter 13 debtors to bifurcate undersecured, short-terms home mortgages into secured and unsecured claims. The unsecured claim is subject to a cramdown.
Citation	In re Paschen, 296 F.3d 1203 (11th Cir., 2002)