“Cram-down” is one of the best features of bankruptcy for the consumer. If you have a case that would benefit from the cram down, please call me.
Cram down can occur in multiple areas of bankruptcy law; for consumers, it usually refers to the ability to reduce the amount owed on certain secured assets when a borrower is “under-water.” In this day and age, lenders will often lengthen out a loan to make the payments smaller for the buyer. Many times, the buyer may not have qualified to make the purchase at the higher payment level, or the buyer would have walked away from the deal altogether. When creditors do this to a depreciating asset like a car, it opens them up to the risk of a “cram-down” because the vehicle financed will lose value much faster than the payments will bring down the outstanding loan balance. In the pressure to get a deal done, lenders will take this risk and hope that it never comes back to bite them. Of course, it does come back to bite them sometimes.
If a vehicle is worth less than the outstanding balance of the loan, this is what is commonly referred to as being”under-water,” or “upside-down” in the industry parlance. If this situation persists for a significant length of time, then the lender begins to be susceptible to the cram-down if the buyer files for bankruptcy. The ability for a borrower and their bankruptcy attorney to effect this reduction is set out in Sec. 13222 and 1325 of the Bankruptcy Code, which allows the Chapter 13 debtor to “modify” the rights of the creditor to a certain extent and subject to certain requirements. Cram down can be available to debtors in other chapters of the Bankruptcy Code, not just Chapter 13.
For vehicles, the requisite time frame that needs to have passed since the purchase is 910 days. Also, a major sticking point is what was actually financed in the subject secured debt. If it was a refinance or if an under-water vehicle was traded in and the deficiency included in the new loan, then this can be a problem. This is a complex process and is fraught with traps for the unwary. Seek the assistance of a bankruptcy attorney to see if the “cram down” can be used in your situation.