When you file for Chapter 13 bankruptcy, you may find that there are several important factors that must be taken into consideration regarding the debts that you owe. One thing you should familiarize yourself with is the idea of a credit cramdown. If you want to file for bankruptcy but are unsure what a cramdown is or how it can benefit you, you’ll want to keep reading. The following blog explores what you should know about these matters and why connecting with a Memphis, TN Chapter 13 bankruptcy lawyer is in your best interest during these matters.
What Does It Mean to “Cramdown” in Bankruptcy?
In the simplest terms, cramming down debt means that you reduce the value of a secured debt to its market value as part of a Chapter 13 bankruptcy plan. For example, if you have a car you are making payments on, that is considered a secure debt, as the auto lender still technically owns the vehicle as collateral until you have paid off your loan. If the car is valued at $10,000 but you still owe $15,000 on your loan, you can cram down the loan to the value of the car. This means you would only be responsible for the $10,000 the vehicle is valued at. This will be treated as an unsecured debt, meaning it will be included as part of your monthly bankruptcy plan payment, and the rest will be forgiven when your remaining unsecured debts are discharged.
The term cram-down originates from the idea that debt is “crammed down” the throat of the creditor in these circumstances. It’s important to understand that the court handles cramdowns and does not need to take the objections of creditors into account. If the court changes the terms of your loan with a creditor, there is nothing the creditor can do about it.
Are There Any Restrictions?
It’s important to note that there are restrictions on what secured debts can be subject to a cramdown. As mentioned before, many cramdowns are utilized for vehicle loans. To ensure cramdowns aren’t utilized unfairly, there are time limits imposed. Generally, you cannot utilize a cramdown on a vehicle purchased within the past 910 days, which is just about two and a half years. For all other personal property, this limit is one year. In addition, cramdowns cannot be used on the mortgage for your place of residence.
Navigating bankruptcy can be incredibly complicated, especially when the terms of your loans are changing. As such, working with an experienced bankruptcy attorney is in your best interest during these difficult times. At the Arnold Law Firm, we understand how overwhelming it can be to owe a considerable amount of debt while trying to navigate the bankruptcy process. That’s why our team is ready to assist you. When you need help, contact us today.
