Home Mortgage Loans
While typically used in a corporate context, the phrase has gained currency in the context of personal bankruptcies as a result of the financial crisis of 2007-2009.
Under current United States law, bankruptcy courts are not allowed to perform cramdowns (i.e., reduce the principal amount or change the interest rate or other terms) on creditors who hold loans secured by mortgages on debtors' primary residences.
U.S. bankruptcy law provides for an automatic stay of any legal process against debtors or their assets (except perhaps legal process involving criminal law or family law) while bankruptcy is pending, but because U.S. bankruptcy courts cannot cram down loans secured by primary residences, creditors are able to file motions for relief from the stay. Once relief is granted, creditors may proceed with foreclosure immediately while debtors' other financial obligations await restructuring by the bankruptcy court. Debtors may eventually obtain discharges of their other debts, but by then, they may already have lost their homes.
Read more about this topic: Cram Down
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