When debtors realize that they have more debt than income and it begins to feel as if there’s no way out, it’s time to consider financial freedom through personal bankruptcy. There are a lot of different things to consider when filing for bankruptcy, such as the chapter that will help the debtor most and the best time to actually file.

Once you decide to file under Chapter 13 of the US Bankruptcy Code, there are still other options that you will need to discuss with your attorney, depending on the type of debt that you owe. One of these options is known as a “cramdown,” which gives debtors the ability to reduce their debts through the bankruptcy process.

How Does the Cramdown Process Work?

A cramdown can be used to convert part of a secured loan into an unsecured debt. A secured loan is a debt that is tied to collateral that the debtor owns, such as a house, land, a vehicle or other personal property of value. Through the cramdown process, a portion of the secured loan would be converted to unsecured debt, which can then be worked with much more easily through the bankruptcy process, allowing it to be discharged when the term of the bankruptcy is complete.

Advantages of Using the Cramdown

There are several advantages to using a cramdown as part of a Chapter 13 bankruptcy. By making some of the debtor’s loans unsecured there are a number of potential financial benefits including:

  • lower interest rates
  • lower monthly payments
  • discharging portions of debt through the Chapter 13
  • reducing the priority of the payment for a portion of the loan

Cramdown Exclusions

It is important to note that there are certain types of secured loans that cannot be included in a Chapter 13 bankruptcy cramdown. While a secondary mortgage loan that has been affected by a loss in value of the secured debt of the debtor’s primary residence can be included, the principal mortgage loan cannot. Secured principal mortgage loans on a primary residence cannot ever be crammed down through the bankruptcy process.

What You Need to Know

Using the cramdown tactic can be a very valuable move for many debtors facing Chapter 13 bankruptcy in today’s current economic situation. Any loss of value on qualified loans and debt may be cause for a cramdown, so it is important to bring any knowledge of questions about loss to the attention of your bankruptcy attorney.

Call our team of experienced Plymouth Bankruptcy attorneys to know what is chapter 13 or to discuss if you qualify for personal bankruptcy at the Law offices of Brian R Lewis at 508-946-3323.