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The Cram Down in Bankruptcy

What’s this “cram down” thing I keep hearing about?

by Adam Mack, J.D.

What Is A “Cram Down”?
A “cram down” is bankruptcy jargon for a forced modification of a secured loan in a Chapter 13 Plan (so called because the modification is “crammed down the throat” of the creditors). Lenders don’t like cram downs because they reduce the amount of money you owe. Like lien stripping, this is a powerful tool a skilled Kansas bankruptcy attorney can potentially use in your behalf.

What It Can Do
The court’s authority to force a modification comes from federal bankruptcy statute.[1] It allows the judge to modify the amount owed on a secured debt, reducing that amount to the value of the security. So, for example, suppose you bought a car three years ago and owe $10,000 on it, but the car is only worth $5,000. In a bankruptcy, the court can actually alter the amount you owe on the car loan, in this case reducing it from $10,000 to $5,000. Many secured debts can be crammed down, including car loans (depending on how recently you bought the car), investment or second-home real estate mortgages, and personal property loans such as furniture bought on credit.

What It Can’t Do
There are some limitations on what can and can’t be crammed down. Unsecured loans like credit card debt can’t be crammed down since there is no item of value securing the debt. As a matter of law, home loans for the debtor’s primary residence can’t be crammed down. [2] Also, loans for vehicles purchased within 910 days (approximately 2 ½ years) and personal property purchased within one year of filing bankruptcy can’t be crammed down.[3]

The Most Important Part
Despite these limitations, the cram down remains an extremely effective legal tool with the potential to help you get out from under overwhelming debt. Consult a qualified Kansas bankruptcy lawyer to find out more about these and other rights and protections you might have.

[1] 11 U.S.C. §1322

[2] Id.

[3] 11 U.S.C. §1325(a)(9)(*) (the “hanging paragraph”)


These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!