Bankruptcy Law: The Cramdown
In Chapter 13 bankruptcy, the idea is to pay back your debt over a period of time, usually three to five years. But sometimes, you’re sitting way underwater on some of your secured debt, making it feel as though there is no way you can pay off all that debt before you die. As an aid to help you get the fresh start you need, Chapter 13 includes a way to reduce the principle on secured debt called a cramdown.
The process is fairly simple. If you owe more on the property than the property is currently worth, Chapter 13 may allow you to reduce both the principal balance and the interest rate in what is called a cramdown. Certain items qualify for a cramdown, including a car loan, furniture or other household goods, and property that is not your residence, such as business or investment properties. Not all items will qualify for a cramdown, however.
A cramdown works by comparing what you still owe on a property, a car for example, and if you owe more than what the car’s Blue Book value, you can cram down the loan to the amount the vehicle is worth through your Chapter 13 repayment plan. The rest of the debt will be added to your unsecured debt, which is usually reduced to a smaller percentage, and erased at the end of the three to five years you spend repaying your debt.
Cramming down loans can sometimes lead to reduced interest rates and can allow you to stretch out the payment schedule beyond the three to five years that are normally part of the Chapter 13 repayment plan, so that your monthly payments are smaller, making them easier to pay on time.
Rules associated with a cramdown
Cars are eligible for a cramdown, but not if you purchased it right before filing bankruptcy. Congress has determined that you must have owned the car for at least 910 days, which is about two and a half years, before it can be included in a cram down. Personal property must be owned for a year before you can cram down your payments. Investment property must be owned for three to five years before it can be subject to a cramdown.
For more information about a cramdown, contact one of the experienced bankruptcy attorneys at Maxwell Dunn to help you determine which property might qualify and how much money the move can help you save. For more information on Chapter 13, cramdowns or other bankruptcy information, set up an appointment by contacting Maxwell Dunn’s team at 248-246-1166.See all videos