What’s a Cramdown?

Cramdowns are actions you could take in a chapter 13 bankruptcy to reduce the amount of debt you would have to pay back for all of your secured debts. This is done by enabling you to pay for the fair market value of your property during bankruptcy rather than the total outstanding loan amount. For example, let’s say you bought a car that is currently worth $5,000 but you owe around $12,000 for your car loans. The cramdown stipulates that you will have to pay back the $5,000 through bankruptcy, but the remaining $7,000 will not have to be paid in full. Rather, that remainder will be considered unsecured debt, and will be paid for in proportion to all your other unsecured debt. Even if any of that $7,000 survives to the end of the bankruptcy it would ultimately be discharged. This tool is extremely beneficial when applicable in a chapter 13 bankruptcy because it reduces the total amount owed and reduces the amounts owed in monthly payments. In order to be eligible for a cramdown the property you are considering “cramming down” needs to have been acquired over 910 days before you filed for bankruptcy.

If you are considering whether filing for bankruptcy is the right action for you, it would be to your advantage to set up a consultation with a local bankruptcy attorney.