In much the same way that consumers deal with debts in a Chapter 13 bankruptcy, Caesars Entertainment Corporation hopes that Chapter 11 will give it a fresh start.

The company announced that about 90 percent of shareholders approved a merger between Caesars Entertainment Corporation, the bankrupt entity, and Caesars Acquisition Company. The merger is part of the company’s reorganization plan, which the shareholders must approve before the company can emerge from bankruptcy. In the coming months, regulators from both Nevada and Missouri will further scrutinize the plan, which is part of an action pending in an Illinois federal court.

Caesars CEO Mark Frissora said the merger “is an important milestone” in the case.

Renegotiating Debt

In many Chapter 13s, home mortgage debt is the largest single liability. Largely depending on the jurisdiction and the facts of the case, debtors may have some options in terms of renegotiating this and other secured debt.

One option may be a cramdown. Assume the homeowner recently purchased a $200,000 home and still owes $200,000 on the note. Further assume that the house’s tax appraised value is now $180,000. If that is the case, the actual fair market value may be even lower than that. Under these facts, the homeowner may be able to renegotiate the $200,000 unpaid principal balance down to $180,000, or the fair market value of the property. In this scenario, the additional $20,000 is forgiven.

A lien strip may be a possibility as well. Assume the homeowner took out a second mortgage for $20,000. If there is not enough equity in the property to secure both debts, the junior lien arguably becomes unsecured and therefore subject to discharge.

Finally, there may be a legitimate dispute as to the amount owed, perhaps because the loan was predatory or the homeowner may be eligible for a loan modification. In these cases, the judge usually refers the dispute to mediation, where the lender has a duty to negotiate in good faith. In other words, the moneylender must come down on its demand and try very hard to meet the homeowner somewhere in the middle.

Paying Off Debt

The principle advantage of a Chapter 13 is not the possibility for debt renegotiation, but the certainty of debt repayment. Debtors have up the five years to catch up on any delinquencies on any secured debt, including home mortgages and auto loans. During this period, the automatic stay remains in effect, in most cases, so moneylenders cannot take adverse action against the debtors, including repossession or foreclosure.

The repayment schedule is income-based, so debtors pay what they can afford as opposed to what the moneylender demands. Again in most cases, the moneylender cannot successfully oppose the repayment plan as long as the arrearage is satisfied within the protected repayment period.

Go With Experienced Attorneys

Chapter 13 debtors may have several debt reduction and debt repayment options. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in Illinois and Indiana.