“Cram Down”

When an individual files for Chapter 13 Bankruptcy they are able to rid themselves of their unsecured debt.  Their secured debt is also eliminated if they choose to surrender their property.  In most cases an individual who wants to keep the property that is securing their debt must agree to repay the secured creditor.  However, in some instances individuals can utilize something called a “cram down.”  A cram down is a technique used in a Chapter 13 Bankruptcy that allows an individual to reduce the balance of their secured debt to the value of the property.  The remainder of their secured debt gets re-categorized as an unsecured debt and gets repaid for pennies on the dollar.  The Debtor is often allowed to reduce the interest rate on these secured debts as well.
In order to qualify for a cram down the debtor must:
1) Not be attempting to alter a mortgage on their principle residence.
2) Not be attempting to alter a car loan that was taken out less than 2 1/2 years prior to the filing of the bankruptcy petition.
3) Be able to pay off the debt during the course of their Chapter 13 Plan.
4) Set up payment of the secured creditor through the Chapter 13 Trustee.
The use of a cram down can dramatically increase a debtor’s chances of success in their Chapter 13 Plan.  However, you need to be sure that you hire an attorney with knowledge of this process.  If the attorney fails to properly value the collateral, or time the filing of the bankruptcy properly. you may fail in your attempt to reduce your balance on these debts.  Additionally, if you are unable to complete your Chapter 13 Plan, you will find yourself significantly behind on your payments to your creditor and unable to save your property.