Chapter 13 Cram-Down on Investment Property in Florida

November 8, 202610 min readBy Barrett Henry, REALTOR®Last updated: November 8, 2026

One of the most powerful tools available to Florida rental property owners facing foreclosure is the Chapter 13 cram-down. If your investment property is worth less than the mortgage balance, Chapter 13 bankruptcy allows you to reduce the mortgage to the current market value of the property -- and treat the rest as unsecured debt that is likely discharged at the end of the plan.

This option is not available for a primary residence. It applies specifically to rental homes, vacation properties, vacant land, and commercial real estate -- any property that is not your principal residence.

The Legal Basis: 11 U.S.C. § 1322(b)(2) and the Anti-Modification Exception

The U.S. Bankruptcy Code at 11 U.S.C. § 1322(b)(2) allows a Chapter 13 plan to modify the rights of secured creditors -- with one important exception: a creditor whose claim is secured only by a security interest in real property that is the debtor's principal residence cannot be modified. The U.S. Supreme Court confirmed this in Nobleman v. American Savings Bank (1993).

For any property that is NOT the debtor's principal residence, that protection does not apply. The mortgage can be bifurcated (split) into:

A secured claim equal to the current market value of the property
An unsecured claim for the balance above market value

The secured claim is paid through the plan. The unsecured portion is pooled with general unsecured creditors and typically receives little or nothing. At plan completion, the remaining unsecured balance is discharged.

How Cram-Down Works in Practice

Suppose you own a rental house in Tampa currently worth $180,000. The mortgage balance is $260,000. You file Chapter 13 and propose a plan that:

Treats $180,000 as the secured claim, to be paid over the plan at the Till rate
Treats the remaining $80,000 as an unsecured claim, pooled with your other unsecured debt

Over the 5-year plan, you pay the secured amount plus interest. The lender cannot foreclose as long as plan payments are current. At plan completion, the $80,000 unsecured balance is discharged, and your rental property now has a mortgage that reflects its actual value.

Lien Stripping for Wholly Unsecured Junior Liens

If a junior lien (a second mortgage, home equity loan, or HELOC) is completely unsecured -- meaning the first mortgage balance alone equals or exceeds the property's market value -- that junior lien can be stripped off entirely in Chapter 13. This is different from a cram-down but achieves a similar result. The stripped lien is void upon plan completion, and the property is free of it.

For more on how Chapter 13 stops foreclosure generally, see our guide to Chapter 13 bankruptcy to stop foreclosure in Florida.

The Valuation Process

The lender will almost always dispute your valuation. The bankruptcy court will hold a valuation hearing where both sides present evidence -- typically appraisals. For rental property, some courts consider both the sales comparison approach and the income approach (capitalization rate). Your attorney should commission a current appraisal before filing.

The interest rate on the crammed-down secured claim (the Till rate) is typically the federal prime rate plus 1 to 3 percent, determined at plan confirmation.

Risks and Requirements

Cram-down is powerful but not automatic. Key risks:

Plan confirmation: The lender can object. The court must confirm the plan before the cram-down takes effect.
Missed plan payments: If you fall behind on plan payments, the lender can seek relief from the automatic stay and resume foreclosure.
Dismissal before completion: If the case is dismissed, the cram-down is not effective and the original mortgage balance is reinstated.
Rental income: Rental income during the plan may need to be included in your disposable income calculation.

Chapter 13 vs. Chapter 7 for Investment Property

Chapter 7 does not allow cram-down. In Chapter 7, you can either reaffirm the debt (keep paying the full mortgage) or surrender the property. Chapter 13 is the only bankruptcy chapter that allows bifurcation of an investment property mortgage. See our guide to Chapter 13 bankruptcy to stop foreclosure in Florida for a broader comparison.

Chapter 12 for Farmers

If the investment property is part of a farming operation, Chapter 12 bankruptcy offers similar cram-down protections specifically designed for family farmers with regular annual income. See our Chapter 12 bankruptcy guide for Florida farmers.

How This Interacts With a Florida Foreclosure

Filing Chapter 13 creates an automatic stay that immediately halts any pending foreclosure action in state court. The lender cannot proceed while the bankruptcy case is active and the plan is current. This stop applies even if a final judgment has already been entered but the sale has not yet occurred.

For the full Florida foreclosure timeline including when a sale can be stopped, see our 2026 Florida foreclosure timeline.

Related Resources for Florida Investment Property Owners

Call Barrett Henry

Barrett Henry is a Broker Associate at REMAX Collective with 23+ years of Florida real estate experience. He provides free, no-obligation consultations for investment property owners considering their options when facing foreclosure.

Call or text Barrett at (813) 761-0133 for a free consultation. Or submit your information online.

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Barrett Henry

REALTOR® & Broker Associate | REMAX Collective

Barrett Henry has 23+ years of real estate experience helping Florida homeowners navigate foreclosure, short sales, and distressed property situations. He serves all 67 Florida counties with offices in Tampa, Largo, and Brandon.

(813) 761-0133

Frequently Asked Questions

What is a cram-down in Chapter 13 bankruptcy?

A cram-down (also called a bifurcation) under 11 U.S.C. § 1322(b)(2) allows a Chapter 13 debtor to split an undersecured mortgage into two parts: a secured claim equal to the current market value of the property, and an unsecured claim for the remaining balance. The secured portion is paid through the Chapter 13 plan at fair market value; the unsecured portion is treated like credit card debt and may receive only pennies on the dollar, or nothing at all if there are no funds available for general unsecured creditors.

Does cram-down apply to my primary residence in Florida?

No. The anti-modification provision of 11 U.S.C. § 1322(b)(2) expressly prohibits cram-down on a mortgage secured solely by the debtor's principal residence. The U.S. Supreme Court confirmed this in Nobleman v. American Savings Bank (1993). Cram-down is only available for investment properties, vacation homes, rental properties, and commercial real estate -- any property other than the debtor's primary residence. A property where you live is fully protected from cram-down even if it is worth less than the mortgage balance.

What types of investment property qualify for cram-down in Florida?

Cram-down is available for any real property that is not the debtor's principal residence, including: single-family rental homes, duplexes, triplexes, and fourplexes held as rentals; vacation or seasonal properties; vacant land; commercial real estate; and mixed-use properties where the debtor does not reside. The key requirement is that the property is not the debtor's primary home at the time of filing.

How is the cram-down value determined?

The secured claim is set at the replacement value of the property, which is typically its current fair market value. If the lender disputes your valuation, the court will hold a valuation hearing. Both sides typically present appraisals. For rental property, some courts also consider income value under a capitalization rate approach. The secured claim earns interest at the Till rate (federal prime rate plus a risk adjustment, typically 1 to 3 percent above prime), which is determined at confirmation.

What happens to the unsecured portion of the mortgage after cram-down?

The portion of the mortgage balance above the property's market value is reclassified as a general unsecured claim. It is pooled with credit cards, medical bills, and other unsecured debt. In a Chapter 13 plan, general unsecured creditors typically receive a pro-rata share of whatever disposable income is available after paying secured and priority claims. In many plans with limited income, general unsecured creditors receive little or nothing. At plan completion (3 to 5 years), the remaining balance of the unsecured portion is discharged.

Can a junior lien be stripped off a Florida investment property in Chapter 13?

Yes. If a junior mortgage (second, third, or home equity line of credit) is completely unsecured -- meaning the first mortgage balance alone equals or exceeds the property's market value -- that junior lien can be stripped off entirely in Chapter 13. This is called lien stripping, and it is distinct from a cram-down but achieves a similar result for wholly underwater junior liens. At Chapter 13 plan completion, the stripped lien is voided and no longer attaches to the property. Florida bankruptcy courts have consistently allowed lien stripping on investment properties.

How long does the Chapter 13 plan last, and what happens to the property at the end?

A Chapter 13 plan runs 3 years for below-median income debtors and up to 5 years for above-median income debtors. During the plan, you make monthly plan payments that include the crammed-down secured amount plus interest. At plan completion, the secured claim is satisfied and the remaining unsecured portion is discharged. You retain ownership of the property with a reduced mortgage balance equal to what you paid through the plan. The lender cannot foreclose as long as plan payments are current.

What are the risks of using Chapter 13 to cram down investment property in Florida?

Risks include: plan confirmation is not automatic and the lender can object to your valuation; if you miss plan payments, the automatic stay lifts and foreclosure can proceed; a dismissal (from missed payments or court sanctions) erases plan progress and may bar refiling for 180 days; rental income during the plan may need to be dedicated to plan payments; the process requires a bankruptcy attorney and filing fees. Additionally, the cram-down only becomes permanent upon successful plan completion -- if the case is dismissed before that, the original mortgage balance is reinstated.

Florida Foreclosure Guides

Understanding your options is the first step. These guides break down every path available to Florida homeowners.

→How Foreclosure Works in Florida →Ways to Stop a Foreclosure →Loan Modification Options →Short Sale Guide →Foreclosure vs. Short Sale →Lis Pendens Explained →Get a Cash Offer →Sell Before Foreclosure

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