If you have made the difficult decision to file for Chapter 13 bankruptcy, it’s imperative to understand your options during these matters. In some instances, you may benefit from a bankruptcy cramdown. If you’re unfamiliar with what this is or how it can benefit you, you’ll want to keep reading. The following blog explores what you must know about these matters, including the importance of discussing your circumstances with a Montgomery County Chapter 13 bankruptcy lawyer to determine if this is right for you.
What Does It Mean to “Cramdown” During Bankruptcy?
In simple terms, a bankruptcy cramdown is an option that allows you to reduce the value of a secured debt to its market value during a Chapter 13 bankruptcy filing. Generally, this is used for auto loans but can be imposed on other eligible debts.
For example, if you have decided to finance a car, this is considered a secured debt. This is because the vehicle is considered collateral, as you are making payments on your auto loan. Failure to make payments can result in the lender seizing the vehicle due to non-payment. As such, if you owe $20,000 on a car valued at $10,000, the judge may order a cramdown. Essentially, this means that you would only be responsible for the value of the car rather than the amount you owe on the vehicle. Additionally, the reorganized debt would be treated as an unsecured debt, meaning the remaining balance would be discharged at the conclusion of your case.
The term cramdown originates from the idea that the courts “cram down” the debt down the throats of the creditor. This is because the court ultimately has the final say in these matters, and does not have to take the objections of creditors into account so long as the debt is eligible for the cramdown.
Are There Restrictions?
It’s imperative to understand that there are some restrictions in place for cramdowns to ensure that this is fair for the creditor. For example, you cannot utilize this on personal property purchased within the past year. Because this is commonly used for vehicles, this timeframe extends to 910 days, which is around two and a half years.
In addition, a cramdown means you will pay the minimum interest rate possible, which again, will be approved by the court. Finally, you should note that you cannot apply a cramdown to the mortgage on your primary place of residence.
A bankruptcy cramdown can be incredibly beneficial for your circumstances. As such, it is in your best interest to discuss this option with an experienced attorney with Mudrick & Zucker P.C. who can help you determine if this is right for you. Our team understands that bankruptcy is an overwhelming process, which is why we are dedicated to helping you navigate this with as much ease as possible. Contact us today to learn how we can help you achieve a financial fresh start.
