Article written by Columbia, SC bankruptcy attorney Daniel Stone
For most home owners in a Chapter 13 bankruptcy, the only option a Debtor has to protect their home, is to pay the arrearage in the Chapter Chapter 13 plan. While this is a great safety net for many people, Debtors who have mobile home mortgages without the attached land in the loan have an extra option that is very enticing. This option “cramming down” the entire loan in the Chapter 13 plan to pay only the value – not the entire loan. Let me give an example. Say the Debtor financed a double wide mobile home in 1997 without the land as collateral. The Debtor now owes close to $45,000 on the mortgage note but the mobile is only worth $23,000 (fair market value). In this scenario, the Debtor can propose a plan to the Bankruptcy Court to pay the value of the mobile home at 5.25 % over 5 years. After the five years are completed, the Debtor owns the mobile home free and clear.
This can be potentially a great option for a Chapter 13 Debtor who has a mobile home. The following are a few notes and concerns I share with my clients that are looking at valuing mobile homes in a Chapter 13 bankruptcy. First, the Debtor has to make sure there is no land attached to the loan. If there is any land attached , a Debtor cannot value a mobile home in a Chapter 13. Second, if a Debtor does value a mobile home in a Chapter 13, he or she is responsible for their own home owners insurance even if it was previously paid through their mortgage lender in the past. Third, finding the right value for your mobile home can be very tricky. A few options include NADA values, formal appraisals, current sales in your area, and county tax values. One of my favorite sources of for mobile home valuations is Vanderbilt Mortgages’ website which has fair market values on used mobile homes in South Carolina.
Finally, lets take a look at how valuing a mobile home can benefit a Debtor in a Chapter 13. The first is obvious. If a Debtor owes $45,000 and is able to value the mobile home at $25,000 in the Chapter 13 plan, the Debtor is saving $20,000 right off the top. Second, the Chapter 13 bankruptcy plan will most likely call for a 5.25% interest rate which is significantly less than most interest rates for mobile home loans. Third, the Debtor will own the mobile home within 5 years rather than 15-30 years which will save the Debtor thousands of dollars in itself.