- posted: Jul. 30, 2023
Chapter 12 bankruptcy proceedings are specifically designed for family fisherman or family farmers that have a regular income. This type of bankruptcy allows these farmers and fishermen to create a plan to repay all or part of their debts. One specific benefit of Chapter 12 bankruptcy is a legal principle called “cramdown.”
Cramdown under Chapter 12 bankruptcy allows you to modify a secured loan so that you pay the actual present market value of the secured property rather than the amount outstanding on the loan. This may significantly reduce a person’s financial liability under the loan. It also prevents the farmer or fisherman from owing more than the secured property is worth.
For example, if a farmer has a $150,000 mortgage on their home and they still owe $140,000 on the loan, but the home itself only has a present fair market value of $90,000, then the debt would be modified to reflect that current value, reducing what is owed by $50,000. This is a significant benefit in Chapter 12 bankruptcy that may help those who need it.
Cramdown is especially helpful for high interest loans that have accrued further debt. For those filing for bankruptcy, they are likely behind on payments and their debts may skyrocket due to interest. Cramdown helps limit the impact of this interest by reducing the debt owed on the secured collateral, whether that collateral is dairy cows or other consumer goods, farming or fishing equipment.
Cramdown is more limited in Chapter 11 and Chapter 13 bankruptcy cases than it is in Chapter 12. In Chapters 11 and 13, a debtor cannot cram down a mortgage placed on their primary residence. However, Chapter 12 does not limit cramdown in this way, so farmers and fisherman who qualify under the act can reduce what they owe on their home under the right circumstances, allowing them to continue running their business.
At Anker Law Group, P.C., we serve Chapter 12 bankruptcy clients in Rapid City and throughout South Dakota. We know how to help family farmers and fishermen get relief from financial hardship. Our compassionate attorneys work with you to find the best path forward. Call us today at 605-519-5967 or contact us online for a free consultation.