Chapter 13 Cramdown

Chapter 13 Bankruptcy focuses on reorganizing a person’s debts so that he or she can avoid foreclosure or property repossession by creditors. Chapter 13 helps people keep their heads above the water by allowing them to pay their debts over an extended period of time or rearranging the terms of the arrangement.

One of the major benefits of Chapter 13 Bankruptcy is the ability to “cramdown” a loan. A cramdown allows a debtor to legally reduce the balance owed on a secured loan to the actual value of the collateral.

Attorney for Cramdown Debts in Bankruptcy in Dallas, TX

A bankruptcy attorney in Dallas, TX, can help you understand how a Chapter 13 cramdown can affect your case. An attorney can also help you complete the various forms required under your Chapter 13 Plan.

The attorneys at Littlefield Law Firm can help you determine whether you qualify for Chapter 13, how the means test works, and what happens if you fail the means test. Contact our experienced bankruptcy attorneys to discuss your case.

Call (972) 812-0900 today.

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Cramdown Information Center

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Which Debts Can I Cram Down?

Typically a debtor will be allowed to cramdown certain secured debts. A secured debt is a loan that is ensured by some form of collateral. Thus, if an individual fails to pay a loan, the creditor may keep the collateral or repossess it.

The most common examples of a cramdown occur in regards to purchase money secured loans. These types of loans occur when a creditor finances a loan for property and then takes a security interest in that property. The most common example is a car loan.

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What Are The Benefits of a Cramdown

Cramming down a loan will reduce the amount the debtor owes on the loan to the value of the collateral that he or she is paying off. This is especially useful because, often times, property depreciates in value over time.

In addition, a cramdown may allow the debtor to lower the interest rate on the loan and extend the term of repayment. It is important to note that the bankruptcy court will determine the terms of the Chapter 13 Plan, which will govern the new terms of the loan, the Chapter 13 plan only lasts up to five years.

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Limits on Cramdowns

To maintain fairness and equity in the bankruptcy process, Congress placed a number of restrictions on a debtor’s ability to cramdown his or her loans. Congress placed a restriction on the type of property that may be crammed down, and the amount of time between the purchase and the potential cramdown.

The 910-Day Rule

Chapter 11 U.S.C. § 1325 of the U.S. Bankruptcy Codes explains that cramdown does not apply to a claim “if the creditor has a purchase money security interest securing the debt that is the subject of the claim,

  • the debt was incurred within the 910-Day period preceding the date of the bankruptcy petition, and the collateral for that debt consists of a motor vehicle acquired for the personal use of the debtor” 11 U.S.C. § 1325(a)(9).

Thus a debtor must have had a motor vehicle for approximately 2, ½ years before such property is eligible for cramdown under Chapter 13 Bankruptcy.

Please note that the rule applies to purchase money security interests, i.e., the limitation on cramdown does not apply to refinanced loans or title loans. 

The One-Year Rule

Under Chapter 11 U.S.C. § 1325, all other property acquired through a purchase money security loan must have been incurred at least one year prior to the bankruptcy petition to be eligible for cramdown.

Examples of a purchase money security interest in property other than a car would be other personal property obtained on credit including but not limited to household goods, business equipment, or even a mobile home. For example, getting a 75-Inch television and financing it through a line of credit from the store, is a purchase money loan. The store will take an interest in the 75-Inch television, and it will be subject to repossession of the debtor fails to pay it.

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Additional Resources

11 U.S.C. § 1325 Confirmation of Plan – Visit Cornell Law Schools’ website for the full disposition of the Bankruptcy Statute that allows a debtor to cramdown his or her debts under the Chapter 13 Repayment plan.

“Saving Your Home In Chapter 13 Bankruptcy” – Visit the National Bureau of Economic Research, a paper written by Michelle J. White and Ning Zhu, explaining how Chapter 13 helps financially distressed debtors save their homes. It explains the effect of reducing payments through cramdown.

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Find a Lawyer for Chapter 13 Bankruptcy in Dallas County, TX

If you are having trouble keeping up with their bills, trying to keep your head above the water, and are seeking to obtain a fresh start through bankruptcy contact Littlefield Law Firm.

Nick Inman and Linda Littlefield are skilled bankruptcy lawyers who have had years of experience assisting clients get their fresh start through Chapter 7 or Chapter 13 bankruptcy. They are dedicated to helping clients relieve their financial stress and get the help they need.

Littlefield Law Firm is located in northern Dallas, Texas and represent clients throughout Dallas County, Collin County, Kaufman County, and Rockwall County. Contact us to learn more about how Chapter 13 Cramdown might impact your ability to keep your automobile or other personal property.

Call (972) 812-0900 to schedule an initial consultation.

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