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Chapter 13 Vehicle Cramdown


Many debtors with serious financial problems also own vehicles that are underwater. Fortunately, the federal Bankruptcy Code offers several options for the debtor to consider. One of the most sensible for many debtors is a Chapter 13 cram-down of the vehicle loan. A cram-down is simply the reduction of the amount that is owed to the fair market value of the vehicle. The debt is "crammed down" to what the vehicle is worth.

The basic rules of a cram-down are pretty straightforward:

1. A vehicle cram-down is only available in a Chapter 13 case (different options exist in other bankruptcy chapters); 2. The vehicle must be for personal use; 3. The debt must have been incurred more than 910 days (about 2 ½ years) before filing the bankruptcy petition ; and 4. The loan must be more than the fair market value of the vehicle.

A cram-down is accomplished through a court order and confirmed Chapter 13 bankruptcy plan. The bankruptcy court will receive evidence of the amount owed and the value of the vehicle. Once the court approves the cram-down, the amount of the secured claim will be the same as the value of the vehicle. The remaining balance will be ordered as unsecured, and will likely be discharged at the end of your bankruptcy case.

The new secured balance is paid to the Chapter 13 trustee who pays the creditor. The balance also includes a new court ordered interest rate. The approved rate of interest is directed by the United States Supreme Court in Till v. SCS Credit Corp, and commonly called the Till rate. The Till rate is often less than the debtor's original interest rate, and lowers the monthly payment.