Thousands of Florida residents declare bankruptcy each year. Whether it be struggles with a business, unexpected medical expenses or other debts getting out of control, bankruptcy represents a last resort for getting your finances back on track.
The bankruptcy process and all the technical details surrounding it can be confusing. This is especially true for Chapter 13 bankruptcy, in which the person declaring bankruptcy must come up with a plan for settling their debts and obligations. A “cramdown” may be part of a Chapter 13 resolution.
What is a cramdown?
A cramdown is a type of reorganization plan for settling the debtor’s obligations in a Chapter 13 filing. What distinguishes a cramdown from a standard Chapter 13 bankruptcy is that the plan is imposed by the court against the objections of the creditors. A cramdown gets its name because it can be said to be “crammed down” the throats of the creditors.
As might be imagined from creditors objecting, cramdown deals reduce the amount of money the debtor owes. In making the reduction, the court attempts to reflect the fair value of the collateral and debt in the present, regardless of the terms when the loan was created.
Details of cramdowns
Generally, creditors with secured loans make out better in a Chapter 13 bankruptcy. But in a cramdown, even secured debts are fair game. The exception to this is any mortgages on a debtor’s primary residence – A cramdown isn’t permitted for that debt.
Frequently, cramdowns are utilized for secured debts such as furniture or automobiles. But note that a vehicle must have been purchased at least 910 days in the past and other property for at least one year to be eligible for a cramdown.
A cramdown is a debt reorganization plan in a Chapter 13 bankruptcy. In a cramdown, the court mandates new terms against the wishes of secured creditors.