Chapter 13 bankruptcy provides many tools for the reorganization of debt. One such tool is what is known as “cram down.”
Cram down allows the altering of the amount owed on a vehicle, provided the vehicle loan is more than 910 days old and that the loan is the original purchase money loan (no refinance with new money). Cram down specifically allows the amount of the loan to be decreased to the current fair market value of the vehicle. For example, if you owe $20,000 on a car and the car is only worth $10,000, if the loan on the car is over 910 days old and is the original purchase money loan, a chapter 13 bankruptcy can cram down the loan to $10,000. Again, this only applies to a vehicle loan over 910 days old and it must be original purchase money.
What if the vehicle is refinanced with a new lender in the last 2 years? This is not an original purchase money loan and the loan is not 910 days old. In this case, we can still cram the vehicle down because it is not a 910 vehicle. Further, we are able to cram down negative equity in both a 910 vehicle and a non-910 vehicle.
Generally, we are allowed to cram down the interest rate to around 4.25% – 5% on any vehicle, provided the vehicle is paid through the chapter 13 bankruptcy plan.
Chapter 13 bankruptcy also allows a debtor to catch up on car payment arrears, and is a good tool to use when facing a possible repossession.
Chapter 13 bankruptcy, therefore, provides some unique tools to restructure car loans, which benefit consumers.