Chapter 13 Bankruptcy Plan Based On Current Home Value

February 15th, 2009 by Reed Allmand

There is a very interesting case Salata, Donald R. and Jean E.; In re where a creditors’ objections to a debtor’s plan was overruled. In the case, the debtor in Chapter 13 bankruptcy had a home that was purchased for more than it is currently worth and had two mortgages on the home. The debtor submitted to the Chapter 13 bankruptcy courts evidence that the home was worth $250,000 based on an appraiser’s estimate and subject to the first mortgage of $277,000. Furthermore, the debtor treated the holder of the second mortgage as an unsecured creditor because of the home’s low (changed) value. The second mortgage creditor objected by citing sales of similar homes for $301,000. The bankruptcy court overruled the second mortgage creditor’s objection saying that because of abnormal market circumstances, the court could not rely on what similar homes have sold for in the area, because less people are buying. The judge in the court said:

“However, the Court is on balance persuaded, as essentially pos¬ited by Debtors’ appraiser, that those actual sales which have occurred may very well represent the near totality of demand for homes in the area at those price levels and what we are witnessing is a supply of homes much greater than the demand for same, which, in terms of fair market value, in the context of an economy in recession, high unemployment, and restrictive financing availability, means materially lower housing values,”

The near totality of demand for homes is exactly where we are in this economy. It is a benefit to debtors that the bankruptcy courts are recognizing the very real challenges homeowners are facing in these turbulent times.

(Source: Consumer Bankruptcy News, Volume 19, Issue 6 page 14)