“Cramdown” is an informal term for one of the most used benefits of Chapter 13 bankruptcy. You won’t find the term in the federal Bankruptcy Code, yet lawyers and judges use it all the time. A “cramdown” of an auto loan is a major benefit available in Chapter 13 that is not available in Chapter 7 bankruptcy.
It refers to a procedure provided under Chapter 13 law for legally rewriting a vehicle loan. It results, usually, in reducing both the monthly payment and the total you pay for the vehicle. The more your vehicle is “underwater”—worth less than what you owe on it—the more you benefit from cramdown.
The 910-Day Rule
To be eligible to cram down the balance on an auto loan, you must have purchased the vehicle at least 910 days (a little over 30 months or 2.5 years) from the date that you filed your Chapter 13 bankruptcy. The 910-day rule also applies to cramming down interest rates.
Stretching Out Payments on an Auto Loan
Another advantage of Chapter 13 bankruptcy is that you can stretch out your payments over the course of your 36 to 60-month plan, regardless of whether you are eligible for a cramdown. For example, if you have 36 months left on your auto loan, by placing it in a 60-month Chapter 13 plan, you can spread your loan out over 24 more months and significantly reduce the payment.
Making the Cramdown Permanent. You must complete your Chapter 13 plan to make the cramdown of the balance an interest rate permanent. If you do not complete your Chapter 13 plan, the original balance and interest rate may be restored and back interest added to the balance.
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