5. Early Maturing Loans (Loans that Mature within 5 Years).
A third exception to the anti modification rule is for early maturing loans – any loan that matures before the final payment comes due under the bankruptcy plan is not subject to the anti modification rule. A home mortgage loan matures on the date the last payment is due under the loan documents. If the loan calls for payments over 15 years, the loan matures in 15 years after the last loan payment is due. If the loan calls for payments over 3 years with a balloon payment of principal and interest at the end of 3 years, the loan matures when the balloon payment is due.
In Chapter 13 cases, the last payment on any plan must always be made within 5 years after the plan payments start. The Court has no discretion to extend the last payment beyond 5 years. Therefore, as a practical matter, the anti modification exception for early maturing loans applies to any loan that matures within 5 years of the date the bankruptcy case is filed.
For early maturing loans, all of the normal restrictions on loan modification are lifted. The Court has the power to approve a plan that:
(a) lowers the interest rate paid on the loan while the case is pending;
(b) lowers the monthly loan payments; or
(c) lengthens the loan payments for up to 60 months.
Full cram down is also permitted for all early maturing loans. For example, assume the following facts:
As this example demonstrates, the ability to lower the interest rate and cram down the principal balance to the value of the property can result in a tremendous savings. It allows a homeowner to make comfortable payments to save a home from foreclosure rather than the massive payments that would otherwise be required under the contract documents.
If your home loan matures within the next five years and the property value is less than the balance due on the loan, call the Weber Law Firm for a free confidential consultation to discuss your options.