Chapter 13 Bankruptcy: What is a cramdown?

When you file a Chapter 13 bankruptcy, you can take advantage of the “cramdown” tool. The cramdown allows a debtor who owns a vehicle that is worth less than what is owed on it to reduce the balance and interest rate on the car loan. A vehicle begins to depreciate in value as soon as you drive it off of the car lot, especially if you bought a brand new car. As a result, it is common for individuals to end up with a car loan balance that is greater than what the car is worth.  A Chapter 13 case may allow you to reduce your car loan balance down to the value of your vehicle. When your Chapter 13 attorney creates your Chapter 13 repayment plan, you can propose that the lender on the vehicle receive only the value of the car instead of the entire amount due under the loan.  For example, if you owe $30,000 on your car and it is only worth $20,000 now, you can allege that the lender only has $20,000 that is secured. The reasoning is that if the lender were to repossess your vehicle and sell it, the lender would only receive $20,000. Thus, the remaining balance of the loan (the $10,000 in the example) should be treated as an unsecured claim. Most unsecured claimants only receive pennies on the dollars due, which saves you thousands of dollars! A cramdown is only available in a Chapter 13 filing, it is not available in a Chapter 7 case.  It is important for debtors to understand that in order to take advantage of a car loan cramdown, you must have purchased the car at least 910 days (about 2 ½ years) before you file your bankruptcy. When you cram down a car loan in Chapter 13 bankruptcy, the law also allows you to lower your interest rate on the loan.  The interest rate will be determined by your specific bankruptcy court, but in most cases it will be lower than your original car loan rate. If are interested in a cramdown, contact Levitt & Slafkes to learn more. If you are interested in learning more about Chapter 13 bankruptcy cases or the cramdown method, contact Levitt & Slafkes, P.C. We are experienced in handling a variety of bankruptcy issues. Our offices are conveniently located in South Orange, New Jersey. Please call us at 973-323-2953 or online to schedule your free initial consultation today.