CHAPTER 13 BANKRUPTCY “CRAM-DOWN” ON MOBILE AND MANUFACTURED HOME

If you are considering filing for bankruptcy, you will have heard the term “cram-down” but may not know what it means or how it benefits you. The bare-bones legal definition of a cram-down is where a person or entity has filed for bankruptcy and one or more creditors are objecting to the terms or to modifications imposed by the court. The court has the final say on the terms of the reorganization and has the ability to cram them down the creditors’ throats. It’s an inelegant term, but apt, and in many cases one that is useful and beneficial because it reduces the balance owed down to the value of the property which secures it– this includes your mobile or manufactured home under certain circumstances.

Here’s the basics-

Chapter 13 bankruptcy allows modifications of payments owed to secured lenders. There are certain exemptions such as mortgages on principal residences, but mobile and manufactured homes have been traditionally classed as personal property, owing to their origin in travel trailers. The Bankruptcy Abuse and Consumer Protection Act of 2005 allowed mobile and manufactured homes to be designated as the debtor’s principal residence, and the lenders pounced.

To say that it did not go well for the lenders is an understatement. It didn’t go well in Kentucky. It didn’t go well in Alabama. It didn’t go well in Georgia. It didn’t go well in Florida. It didn’t go well in front of the Eighth Circuit Court of Appeals. Every state has its own peculiarities of bankruptcy law, and in case after case, the judges ruled against the lender. However, there are some qualifications that those looking to cram down their mobile or manufactured home must meet:

1. The mobile or manufactured home must be on a separate note than the property on which it sits. If the two are financed as one, it counts as real property and is ineligible for a cram down;
2. You must have purchased the home at least 910 days before filing for bankruptcy;
3. The home must be appraised before the case is filed;and
4. If filing in a Chapter 7, you must pass the means test.

Most people buy a residence believing real estate prices will go up, and they will have a secure investment. Mobile and manufactured homes tend to depreciate in the years after purchase much like an automobile after it’s driven off the dealer’s lot. Factors such as age, the location and neighborhood, maintenance, the overall economy and housing demand, and wear and tear are factored into any appraisal.

If you are considering filing for bankruptcy, please give us a call for a free consultation. No matter what, you need someone who knows bankruptcy to help you. Even a “simple” Chapter 7 can be too much for a layperson or bankruptcy preparer to handle. Only an attorney can give you the legal advice and representation you need to have a good outcome.