Consumers who file a chapter 13 bankruptcy are presented with several options when they own cars that have a value less than the amount of the loan. The consumer can choose to pay the full balance of what is owed throughout the bankruptcy process, or he can choose to do what is commonly known as a “cram down” of the car loan.
A debtor may opt to cram down most types of car loans. For example, if the debtor owns a car worth $10,000, but the balance on the loan is $20,000, the debtor, along with the assistance of his or her attorney, can cram down the loan to $10,000, and pay the remaining amount as an unsecured debt, just like a credit card. The creditor will not necessarily receive the full unsecured amount, but any amount that is unpaid after the bankruptcy is successfully completed will be discharged. This means that at the end of the successfully completed bankruptcy the debtor will own the car free and clear.
One advantage of the cram down process is that the amount owed on the car loan can be paid in the bankruptcy at a standard interest rate, which is often lower than the interest rate the debtor had prior to filing the bankruptcy. This lower interest rate, combined with the payments being spread out over three to five years, often results in lower monthly payments, which can be significantly helpful to the debtor.
In many cases, a debtor can choose to cram down other secured debts, not just car loans. To cram down a car loan, the debtor must have purchased the car at least 910 days prior to filing bankruptcy (about two and a half years). For other personal property, such as furniture, the debtor must have owned the property for at least one year prior to filing the bankruptcy.
In many cases, a debtor can choose to cram down other secured debts, such as the mortgage on investment properties or rental properties, and personal property. If the debtor owes more on the mortgage for a property other than his residence than it is worth, it is often possible to cram down the value of the mortgage in the same way as a car; however, as with cars, the full amount of the crammed down value must be paid over the life of the plan, which can cause higher monthly payments within the chapter 13 bankruptcy than if the mortgage were not crammed down.
To cram down loans secured by personal property, such as furniture, the debtor must have owned the property for at least one year prior to filing the bankruptcy.
If you believe a cram down on your secured property would be beneficial, or would like additional information regarding chapter 13 bankruptcy, please contact the Jacksonville bankruptcy lawyers at Cleaveland & Cleaveland, P.L at (904) 642-2040.
