A Chapter 13 cramdown can be a powerful tool for people struggling with secured debt. If you owe more on a car loan or other secured property than it’s worth, a cramdown may help you save that asset—and lower your monthly payments.
This strategy is only available in Chapter 13 bankruptcy, not Chapter 7. It works by allowing you to reduce the balance of a loan to match the current value of the collateral.
How Does a Chapter 13 Cramdown Work?
Let’s say you bought a car a few years ago for $25,000. You still owe $18,000, but now the car is worth only $11,000.
In a Chapter 13 cramdown:
- You pay only the $11,000 secured portion of the debt.
- The remaining $7,000 becomes unsecured debt.
- Unsecured debt is often discharged at the end of your plan.
- You keep the vehicle if you complete your plan.
This process is available for certain other types of secured property as well, including:
- Investment real estate (but not your primary residence)
- Furniture or household goods
- Business equipment
Chapter 13 Cramdown Requirements
You must meet specific conditions to qualify for a cramdown:
- The loan must be older than 910 days (about 2.5 years) if it’s for a vehicle.
- For personal property, the loan must be at least one year old.
- The asset must be included in your Chapter 13 repayment plan.
If you meet those conditions, the court can approve a cramdown as part of your confirmed repayment plan.
What Debts Can’t Be Crammed Down?
There are limits to what a Chapter 13 cramdown can do. You cannot cram down:
- Your primary home mortgage
- New vehicle loans less than 910 days old
- Non-purchase-money loans tied to personal property
However, if you own rental property or older personal property tied to secured debt, a cramdown may still apply.
Benefits of Chapter 13 Cramdown
A cramdown can give you much-needed breathing room. Here’s what makes it valuable:
- Lower loan balance: You reduce your secured debt to the asset’s value.
- Lower interest rate: Courts often approve a new interest rate, which can reduce payments further.
- No repossession: You keep the car, furniture, or equipment if you follow your plan.
- Discharge of unsecured debt: The forgiven portion of the loan may be wiped out at the end.
Risks and Considerations
Cramdowns aren’t automatic. The court must approve your repayment plan. Creditors can object, but a knowledgeable bankruptcy attorney can often overcome those objections with strong legal argument.
Also:
- You must complete the full 3- to 5-year Chapter 13 plan to benefit from a cramdown.
- If your case is dismissed, you may still owe the full balance of the original loan.
- A cramdown affects your credit report and future financing ability.
Why Work With a Livonia Bankruptcy Attorney?
Successfully using a Chapter 13 cramdown requires legal knowledge, careful planning, and an understanding of Michigan bankruptcy courts.
At Noble Path Legal PLLC, we:
- Evaluate your eligibility for a cramdown
- Draft and file your Chapter 13 plan
- Represent you in court and at creditor hearings
- Help you keep your vehicle and assets while reducing debt
We serve clients across Livonia, Metro Detroit, and all of Southeast Michigan. Whether you’re dealing with upside-down car loans, repossession threats, or business debt, we’re here to help.
Ready to Reclaim Your Financial Stability?
Don’t let high car payments or bad loan terms destroy your budget. A Chapter 13 cramdown could be the solution you need.
Schedule your free consultation with the Livonia bankruptcy attorneys of Noble Path Legal PLLC today to discuss your case, protect your property, and move forward with confidence.