Terminology in the legal world can sometimes seem odd, and a Chapter 13 bankruptcy cram down certainly qualifies. So, what is cramdown in Chapter 13 bankruptcy in Michigan?
In a Michigan Chapter 13 bankruptcy, a “cramdown” allows you to reduce the balance of a secured debt (like a car loan or investment property mortgage) to the current value of the collateral, potentially leading to lower payments and interest rates.
Having practiced as a Michigan Chapter 13 bankruptcy attorney for over two decades, I’ve worked on countless cases to leverage cram down for the benefit of clients. In this article, I’ll review what cramdown means, the impact on secured loans, and the steps in the bankruptcy process.
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FAQs About Cramdown in Chapter 13 Bankruptcy
What is a Chapter 13 cramdown?
A Chapter 13 cramdown is a legal process that allows debtors to reduce the amount owed on certain secured debts to the current market value of the collateral. For example, if you owe more on a car loan than the car is worth, the loan balance can be reduced to match the vehicle's value.
The remaining unsecured portion of the debt may be discharged at the end of the repayment plan. This process is available only under specific conditions and applies to depreciated assets.
The remaining unsecured portion of the debt may be discharged at the end of the repayment plan. This process is available only under specific conditions and applies to depreciated assets.
What is the cram down rule in bankruptcy?
The cram down rule in bankruptcy permits debtors to adjust the terms of secured debts under a court-approved repayment plan. This typically involves reducing the loan balance to the value of the collateral, lowering the interest rate, or extending repayment terms.
The rule primarily applies in Chapter 13 bankruptcy cases and helps individuals manage debts tied to depreciating assets. Certain exceptions, such as loans on primary residences, limit its application.
The rule primarily applies in Chapter 13 bankruptcy cases and helps individuals manage debts tied to depreciating assets. Certain exceptions, such as loans on primary residences, limit its application.
What is the 910 day rule for cramdowns?
The 910-day rule prevents car loan cramdown for vehicles purchased within 910 days (approximately two and a half years) of filing for bankruptcy. Under this rule, the debtor must pay the full balance of the loan through their Chapter 13 repayment plan, regardless of the car’s current market value. This rule was established to protect lenders from significant losses on newer loans and leads to fair treatment in bankruptcy cases.
What is the difference between cram up and cram down?
A "cram down" reduces the amount owed on secured debts to the collateral’s value, benefiting debtors by lowering their financial obligations. Conversely, a "cram up" involves debtors restructuring payment terms to pay the full debt balance, often at more favorable terms such as reduced interest rates.
While cramdowns are more common, cram ups may be used when debtors seek to retain assets without reducing the principal owed. Both processes require court approval under bankruptcy law.
While cramdowns are more common, cram ups may be used when debtors seek to retain assets without reducing the principal owed. Both processes require court approval under bankruptcy law.
What liens can be crammed down in Chapter 13?
In Chapter 13 bankruptcy, certain liens on secured debts can be crammed down, meaning the loan balance is reduced to the collateral’s current market value. Examples include vehicle loans (if the car was purchased over 910 days before filing), rental property mortgages, and loans secured by furniture or equipment.
However, primary residence mortgages cannot typically be crammed down. The remaining unsecured portion of the debt may be discharged after completing the repayment plan, providing significant financial relief to debtors with depreciated assets.
However, primary residence mortgages cannot typically be crammed down. The remaining unsecured portion of the debt may be discharged after completing the repayment plan, providing significant financial relief to debtors with depreciated assets.