Bankruptcy – Cram Down
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What Is a “Cram Down” in Bankruptcy?
If you are behind on a car loan or other secured debt and worried about losing your property, a cram down in Chapter 13 bankruptcy can be a powerful tool to help you keep it — and possibly save you money.
How a Cram Down Works
A cram down allows you to reduce the amount you must repay on certain secured debts to the property’s current value rather than the full amount you originally borrowed.
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Example: Suppose you owe $15,000 on a car loan, but the car is only worth $9,000. In a Chapter 13 bankruptcy, the court can “cram down” the secured portion of the loan to $9,000 — meaning you only pay $9,000 as a secured claim through your repayment plan.
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The remaining $6,000 is treated as unsecured debt, like credit cards or medical bills, and may be discharged (erased) at the end of the plan if you are not required to pay unsecured creditors in full.
Key Benefits
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Lower Monthly Payments: Your payment is based on the reduced balance and may be stretched out over the life of your 3–5 year plan.
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Reduced Interest Rate: In many cases, you can get a court-approved interest rate that is lower than your contract rate.
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Keep Your Property: A cram down lets you keep the car or other asset instead of surrendering it.
Important Limitations
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Available Only in Chapter 13: You cannot cram down loans in Chapter 7 bankruptcy.
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Car Loan Timing (“910-Day Rule”): You generally must have purchased the car at least 910 days (about 2.5 years) before filing bankruptcy.
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Applies to Personal Property, Not Mortgages on Your Home: You cannot cram down a mortgage on your primary residence, but you can sometimes strip second mortgages or liens if the home is worth less than the first mortgage.
Bottom Line
A cram down can be an effective way to lower what you owe, make your plan payments affordable, and protect the property you need for work and daily life.
Cram Down: Lowering Your Loan Balance in Chapter 13 Bankruptcy
A cram down is a special tool available in Chapter 13 bankruptcy that lets you reduce what you owe on certain loans to match the current value of the property—not what you originally borrowed. This can make your monthly payment much more affordable and help you keep your property.
📊 Before vs. After a Cram Down
| Item | Before Chapter 13 | After Chapter 13 Cram Down |
|---|---|---|
| Loan Balance | $15,000 car loan | $9,000 (car’s current value) |
| Interest Rate | 12% (contract rate) | 6% (court-approved rate) |
| Monthly Payment | $450 (at high rate over remaining term) | $275 (spread over 3–5 year plan) |
| Total Paid on Loan | $15,000 + interest | $9,000 + reduced interest |
| Outcome | Risk of repossession, high payment | Car saved, affordable plan, possible discharge of remaining $6,000 as unsecured debt |
✅ Key Benefits
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Lower Principal: You only repay the current fair market value of the asset.
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Lower Interest Rate: Court sets a reasonable rate (often lower than your contract).
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Keep the Property: Stop repossession and pay through the plan.
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Discharge of Remaining Balance: Any amount above the value can be treated as unsecured debt and possibly wiped out at the end of the plan.
⚠️ Limitations
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Applies only in Chapter 13 bankruptcy (not Chapter 7).
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Car loans must be more than 910 days old to qualify.
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Does not apply to your primary home mortgage (but you may be able to strip second mortgages).
