Many Bankruptcy lawyers talk about “cramming down a debt”. But what is a “cram down”?
The Bankruptcy code allows for the modification of many debts, including some secured debts. This is called “Cram down”. But what is a “cram down”?
A cram-down is when you pay a creditor who is secured (has a right to repossess something) less than the full balance over time, through your Bankruptcy. Examples are car loans, and debts for stuff you bought- computers, TVs, couches, refrigerators, etc.
For example, lets say you bought a nice TV (big screen projection) a year before the Bankruptcy, and when you file, the balance is $2,000 (projection TVs were all the rage about 10 years ago, and they were very expensive), but the value, if you bought a similar one today, in similar condition, is $300. It’s a used TV that occupies a lot of space, and you can’t even hang it on the wall. In that case, you can cram down the value of the TV, pay the lender $300, and the balance becomes unsecured. If you get a Discharge, you will have paid about 15% of what you owe.
Another example is a car (there are limits on cars, which we will discuss another time.) You owe $15,000. The car is worth $7,000. You can cram the car down, pay the lender $7,000, and treat the rest as unsecured, and pay about 50% of what you owe.
Note that in all cases, there are rules that you must follow, and details that are important to note with each situation. To know what you can do, you should consult a lawyer.
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Krumbein Consumer Legal Services, Inc.
5310 Markel Rd. Suite 102
Richmond, VA 23230