Chapter 13 Cramdown: A Useful Tool in Bankruptcy
The term “cramdown” allows a debtor who owns a vehicle that is worth less than what is owed on it to reduce the balance and interest rate on the car loan. It is far too common for individuals to end up with a car loan balance that is greater than what the car is worth. In a chapter 13, you can propose that the lender of the vehicle receive only that value of the car instead of the entire amount owed due under the loan. For example, you owe $20,000 on your car and it is only worth $10,000 now, you can claim that the lender only has $10,000 that is secured. So, if the lender were to repossess you vehicle, the lender would only receive $10,000. Therefore, the remaining balance of the loan should be $10,000, treated as unsecured claim.
There are restrictions on a vehicle cramdown. First, a vehicle cramdown is only available in a Chapter 13 bankruptcy. Second, the vehicle must be for personal use. Third, the vehicle must have been purchased at least 2 ½ years (910 days) before filing for bankruptcy. Lastly, the loan must be more than the fair market value of the vehicle.
The debtor may also ask to reduce a high interest rate, or change the number of months for repayment. However, the interest rate and payment time may still be adjusted to a court-ordered interest rate, called the “Till rate” so named after the U.S. Supreme Court case, Till v. SCS Credit Corp., 541 U.S. 465 (2004). The Till rate is often less than the debtor’s original interest rate, and lowers the monthly payment. Vehicle debt for many Chapter 13 debtors is paid at the Till rate over the course of the bankruptcy case.
If you want to know if you qualify for a cramdown in a Chapter 13 bankruptcy, contact the Wright Law offices with offices located in Avondale, Phoenix, and Scottsdale.
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