What is a Cramdown and How Can it Help in a Chapter 13 Bankruptcy Case?

One of the attractive features of a Chapter 13 bankruptcy reorganization is it allows you to get rid of cumbersome past debt while it enables you to stay current on upcoming payments due on property you will want to keep such as your home and car.  In these Chapter 13 cases, you can particularly get out from what are commonly referred to as “underwater loans”. These are loans where the amount still due on the loan exceeds the current value of the item purchased by the proceeds of that loan.   In this context, you can opt to “cramdown” the loan so you do not have to pay off so much principal.


This is how a loan cramdown works. Imagine that you bought a car five years ago for $20,000. Like most cars, it began to depreciate the minute you drove it off the dealer’s lot. Now, at the time of the bankruptcy case, it is worth – i.e., has a fair market value of – $12,000 but you still owe $14,000 on the loan used to buy it. This means you are underwater to the tune of $2000 on this loan. In a Chapter 13 bankruptcy, you can opt for a loan cramdown so that $12,000 becomes the amount of the secured claim held by the lender. The other $2000 would be deemed unsecured debt and would be treated like unsecured claims which can be discharged in bankruptcy by paying either a few cents on the dollar or even nothing at all. The secured portion would have to be paid during the time of the established repayment plan. Once all such payments are made, you would then own the car free and clear of any lien the lender may have had on the vehicle.


Cramdowns also apply to other forms of secured loans except home mortgage loans. They are utilized with regard to other personal property loans secured by collateral.


It needs to be noted that, with regards to cramdowns of car loans, there is a rule restricting them to cars purchased and loans received more than 910 days earlier. This rule, known as the “910 rule” seeks to confine the cramdown to older cars that debtors had purchased. Accordingly, cramdown is not a viable option for newly-purchased vehicles.  As for loans on other forms of personal property, the property must have been bought more than a year before the bankruptcy filing.


At the Law Office of George “Dave” Giddens, P.C. our attorneys serve Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. And we have bankruptcy attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases in New Mexico. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Our conveniently located office has ample free parking and is easily accessible by public transportation. We offer flexible office hours upon request. To make an appointment for a consultation about your real estate matter, contact us online by visiting the firm’s website at giddenslaw.com. or call us at (505) 633-6298. Giddens & Gatton Law, P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.