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What Can I Do When My Building Is Worth Less Than I Owe?

Robert J. Adams & Associates June 30, 2014

In the last five years, property values have fallen leaving many people owing more money than their property is worth. If you own a building with rental apartments, you may be able to reduce what you pay to only what the building is worth by filing a Chapter 13 bankruptcy and using a cram down or bifurcation. 

The terms “cram down” and “bifurcate” essentially mean the same thing. In a Bankruptcy a cram down is where the amount you pay for an asset gets crammed down to what it is worth. You have to pay 100% of the value of the collateral, plus interest. The remainder, however, is repaid at a reduced percentage, usually only about 10%. This can result in thousands of dollars in savings.

For a single family house, the cram down is not available because of the special treatment written into the Bankruptcy Code. So for a primary residence, the mortgage terms can’t be changed. This leaves the average homeowner with the sole option of repaying what is owed.

But, this anti-modification provision does not apply to rental property. The same holds true if you live in one unit and rent out one or more apartments or any other property you do not occupy as your primary residence.


Assume you own a 2 flat worth $100,000 but you owe the mortgage company $130,000.

In a Chapter 13 you can repay the mortgage company $100,000 plus interest over a period up to 5 years. (For reference, $100,000 at 5.5% interest over 5 years is $1,910.12 per month.) The remaining $30,000 will be paid a dividend of only about 10% or $3,000 resulting in a savings to you of $27,000.

The Chapter 13 payments would also include trustee’s fees, likely your lawyer’s fees, and any other debts which can also be paid a reduced percentage of what is owed.


  1. When the mortgage was obtained it must be clear that at least one unit would be rented or that you are buying a single family home (or condo) as an investment to be rented.

  2. The application must be accurate. The mortgage company will examine the loan application and documents very closely.

  3. You must obtain a good appraisal with an appraiser who will be willing to testify if necessary. The mortgagee has the right to obtain its own appraisal.

  4. You will be required to pay both the current real estate taxes and hazard insurance yourself.


  1. A loan that includes your home and any other asset such as business property or even your car.

  2. A mortgage that includes more than one piece of real estate.

  3. If by the terms of the mortgage it must be paid within 5 years, it can be bifurcated-even on a single family home where you live.


Chapter 13 offers many options for dealing with a building and the mortgage on it.