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3 Things You Should Know about Cramdowns

When a debtor files for bankruptcy, they may be able to reduce some of their loans through an action known as a cramdown. This action allows a debtor to move secured debt, such as car loans, to unsecured debt. In a Chapter 13 repayment plan, this allows a person to deal with these important loans much easier.

If you are facing bankruptcy due to your inability to pay back creditors, we may be able to help you take the first steps towards financial freedom. Contact the Joliet Chapter 13 bankruptcy lawyers of Law Offices of Stuart B. Handelman at 815-722-2201 today.

Important Information about Cramdowns

Before you take action in reducing your loans, you should know the following about cramdowns:

#1: Cramdowns only affect certain secured loans.

Cramming down all loans is not allowed in Chapter 13 cases. A person can only use this tactic to lower the principle balance on a debt if it is considered secured. In basic terms, this includes most debts that can have the property repossessed by the creditor due to a failure to pay. However, mortgages on a primary residence such as a family’s house are not able to be crammed down.

#2: Cramdowns reclassify secured debt as unsecured debt.

The most important benefit of a cramdown is to shift the paid amount of a debt to an unsecured debt. The remaining balance on the debt will still need to be paid according to the rules of secured debt in Chapter 13, but this paid-off amount can be paid back according to the significantly looser regulations on paying back unsecured debts. This allow for lower or less frequent payments, namely through a reduction of interest rates.

#3: Time restrictions affect cramdowns.

A person is not allowed to purchase a brand new car and immediately cram down the small amount that they have paid on it. For automobiles, a person needs to have owned that vehicle for at least 910 days prior to filing for bankruptcy. For other personal property, a similar rule exists. However, this rule sets the required time of ownership at one year.

Contact Us

If your financial troubles have become an inescapable problem for you, our experienced attorneys may be able to assist you with your concerns and questions. To learn more about your options, contact the Joliet Chapter 13 bankruptcy attorneys of Law Offices of Stuart B. Handelman by calling 815-722-2201 today.