Is the Value of the Mobile home less than Balance on the Loan?
Valuing Liens in Chapter 13
One of the advantages of a Chapter 13 bankruptcy is ability to strip a lien on a mobile home or manufactured home loan down to the current fair market value and pay the fair market value through a Chapter 13 Plan. Here is a common example: Your Mobile Home has current fair market value of $30,000 and the balance on the loan is $55,000. Because the balance is greater than the fair market value, the value of the lien can be reduced or “stripped” in a Chapter 13 with you only paying the fair market value of the mobilehome through the Chapter 13 Plan over 3-5 years instead of the contract term which may be up to 30 years.
When does a Chapter 13 lien stripping case make sense? First, you need to make sure the fair market value is below the balance due and owing on the loan. This can easily be done by talking to a realtor in your area or looking at mobile homes in your park that have recently been sold. Second, you don’t want to file a Chapter 13 to strip a lien unless you really, really want to stay in this mobile home. A Chapter 13 is a commitment of between 3-5 years. Third, the amount to be reduced on the balance of the mobile home loan combined with other debt needs to make a Chapter 13 advantageous i.e. you don’t want to file Chapter 13 to reduce the balance on your mobile home by $5,000.00.
If a Chapter 13 is sounding like something that might work for you, there are several other things to consider. First, we must make sure all of the owners of the mobile home and all of the people who signed on the loan are filing bankruptcy. For example, if the property is owned by both you and your parents, we cannot strip off the lien on the mobile home unless both you and your parents are filing bankruptcy. If the property is owned by you and your spouse, only one of you would need to file bankruptcy to strip the lien because all community property is included in the bankruptcy case. Second, in order to strip off the lien, we have to prove that your mobile home is not worth more than the payoff balance. Therefore, it is very important to understand the current value of your mobile home. The value does not include the location or park where the mobile home is located. Rather, it is current the current value of the mobile home without any attachments or value added for location.
In conclusion, there has never been a better time for Chapter 13 lien stripping cases on mobile homes. Mobile home values are still very low in relation to amount paid for most of the mobile home in this area. This is truly the lemonade out lemons recipe if you meet the requirements for a Chapter 13. Before you keep paying on a mobile home that may be worth one half of your current loan balance, it may be a good idea to consider a Chapter 13 and see what it can do for you. I see people for a free 30 minute consultation at my offices in Walnut Creek and Brentwood.
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