Chapter 13 Bifurcation
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Chapter 13 Bifurcation

If you're considering filing for bankruptcy Chapter 13, you may have heard that the bifurcation process may help help you make more affordable payments on your debts and hang on to some of your possessions. But how does it work?

What is Bifurcation

Chapter 13 bifurcation, also known as a "cramdown," is a debt manipulation tool that sometimes allows bankruptcy filers to hang on to assets secured by loans and pay a smaller percentage of the associated debts. Here's how it works:

  • You file your Chapter 13 case: In your Chapter 13 bankruptcy petition, you must include information outlining all of your assets, income and debts. This information will be important in determining whether you might qualify for bifurcation on any of your loans.
  • The court considers your secured debts: Secured debts are those that are connected to property, like a car loan or a mortgage loan. If you owe more on a secured loan than the current value of the property to which it is attached, bifurcation may help you manage the debt in Chapter 13 bankruptcy.
  • The court may choose to bifurcate your debts: In the case of a car loan, for example, the court may choose to bifurcate or cram down the loan. This means dividing in two the type of debt associated with that loan: secured debt and unsecured debt. The amount of secured debt can only be equal to the current value of the property to which the debt is connected; the remainder of the loan may be converted into unsecured debt and discharged. In other words, if you owe more on your car loan than the vehicle's current fair market value, the bankruptcy court may ask you to repay only the amount the car is now worth and forgive the rest of the loan.

What Kinds of Loans Are Eligible for Chapter 13 Bifurcation?

Unfortunately, primary mortgages cannot be bifurcated or crammed down in Chapter 13 bankruptcy. This is one provision of bankruptcy law that is very clear and very frustrating to many filers. What this means is that the bankruptcy court cannot modify the terms of a primary mortgage, even to accommodate the recently decreased value of a house.

Second or third mortgages, mortgages on properties not used as a primary residence, car loans and other secured loans can generally be bifurcated or crammed down in bankruptcy court.

Learn More about Chapter 13 Bifurcation from a Bankruptcy Lawyer

If you're ready to learn more about this particular aspect of Chapter 13 bankruptcy law, or see if Chapter 13 might be the right solution for you, you can speak with a bankruptcy lawyer in your area for more information. Simply fill out our free online evaluation form to arrange a free, no-obligation initial consultation with an attorney near you.

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