There are many tools to take advantage of during the bankruptcy process. That is why we recommend filing with the help of a Montgomery County Chapter 13 bankruptcy lawyer, even if you think that your finances aren’t all that complicated. A lawyer from our firm can help you make the most out of the process and available tools like the bankruptcy cramdown.
Can I Use a Bankruptcy Cramdown in Chapter 7 or Chapter 13 Bankruptcy?
Chapter 13 bankruptcy allows a bankruptcy cramdown, but Chapter 7 does not. This is due to how secured debts are treated in each type of bankruptcy and how arrangements are made to pay back creditors.
What Kind of Debt Can Be Crammed Down?
A bankruptcy cramdown can be used on a secured debt, one where the lender has some kind of interest in a property of yours. These cramdowns are commonly used for cars and investment properties. They allow you to reduce the value of the loan that you owe and pay off part of your debt as a part of the larger bankruptcy repayment plan that gets approved by your creditors.
Here is what could happen. Let’s say that you owe $15,000 on a car. You file for bankruptcy, but you cannot just wipe out this debt because you would lose the car. It’s a secured debt. However, you have also done the research and determined that your car is actually only worth $10,000.
You can use a bankruptcy cramdown to reduce your loan from $15,000 to $10,000, making it more manageable. Then that $5,000 you took off this loan would be lumped in with your unsecured debt. You then negotiate a plan to pay back all or part of what you owe over the next three to five years. Continue to make your bankruptcy payments and your car loan payments and you can keep your vehicle.
What Are the Advantages of a Bankruptcy Cramdown?
There are a few obvious perks of using a bankruptcy cramdown. Benefits can include:
- Being allowed to keep the property or possessions you owe money on
- Ending up with less to pay back on a significant loan
- Saving on principal and interest payments
- Possibly having some of your debt wiped out as a part of your repayment plan
If you think that one of your secured debts is a good candidate for a bankruptcy cramdown, your lawyer can help you take advantage of this tool.
What Rules and Restrictions Should I Know About Before Filing?
You could run into restrictions on bankruptcy cramdowns if you have not owned your property for long. A good example of this is the 910-Day Rule for cars. You usually need to have purchased your vehicle at least 910 days before filing for bankruptcy if you want to use a cramdown. Your lawyer can help you figure out if any other kinds of restrictions might apply to you and your secured debts.
Schedule a Consultation
If you are considering filing for bankruptcy yourself, talk to an attorney first. Contact Mudrick & Zucker to schedule a consultation and learn more about what our attorneys can do for you.
