"Cramming Down" Property In Chapter 13 Bankruptcy Cases: What Is It?

§ 1322(b)(1) of Title 11 provides that a Chapter 13 plan of repayment “ may modify the right of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence…” “Cramming down” a secured claim modifies the original agreement regarding repayment of the debt creating new payment terms typically related to the interest rate and loan’s term.

In a Chapter 13 bankruptcy case, a debtor may cram down an automobile loan, investment property mortgage, or other loan for personal property, including household goods, electronics, and furniture. § 1322 of Title 11 specifically provides that a mortgage on a principal place of residence may not be crammed down in a Chapter 13 case. As long as the present value of the future stream of payments in the Chapter 13 plan pays the secured claim in full, the bankruptcy court will confirm the debtor’s Chapter 13 plan despite any objection by the creditor who possesses the secured claim.

Cramdowns of auto loans are most typical in Chapter 13 cases. However, to cram down a car loan, it must have been purchased at least 910 days, or approximately 2 1/2 years, prior to the bankruptcy case filing so that consumers don’t abuse the law and cram down the car loan immediately after purchase. A one-year rule applies to all other personal property requiring personal property such as household goods and furnishings to be purchased at least one year prior to the filing of the bankruptcy case to meet the requirements for a cramdown.

Using an automobile loan as an example, this is how a cramdown operates in a bankruptcy case: If a car is worth $12,000 and is collateral for a loan with a balance of $22,000, a Chapter 13 bankruptcy debtor may cram down the loan to $12,000 in a Chapter 13 plan of repayment provided that the car was purchased more than 910 days before the case filing. The remaining $10,000 of the balance of the auto loan is included with the pool of unsecured debts. Thus, only a portion, if any, of this unsecured debt will be paid in the Chapter 13 plan, and the remainder will be discharged at the plan’s completion. The automobile will be owned free and clear at the completion of the bankruptcy.

Investment mortgages are crammed down like automobile and personal property loans but are not subject to any duration (910 and 365-day) requirements. However, as a Chapter 13 plan may be no more than five years, a debtor must repay this mortgage in a shortened period of time, which may be substantially difficult.

If you are facing debt problems, bankruptcy may be a viable solution. The experienced Sacramento metropolitan area/Northern California defense attorneys at the Montefalcon Law Offices are here to help you if your financial position necessitates the consideration of a bankruptcy case filing under Chapter 7, 11, or 13. Contact us online or schedule a consultation at any of our three conveniently located offices. Telephone our downtown Sacramento office at (916) 444-0440, our South Sacramento office at (916) 399-9944, or our Concord office at (925) 222-5929.