We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
Cram Down: A Comprehensive Guide to Its Legal Implications
Definition & Meaning
Cram down is a legal term in bankruptcy law, specifically under Chapter 13, that allows debtors to keep their collateral while repaying a reduced amount. This reduction is based on the fair market value of the collateral at the time the bankruptcy plan is confirmed. For instance, if a debtor owes more on a car than its current value, they can adjust their payments to reflect the car's market value instead of the total debt owed.
Table of content
Legal Use & context
Cram down provisions are primarily used in bankruptcy cases, particularly Chapter 13 filings. This term is relevant in civil law, specifically in financial and bankruptcy contexts. Debtors can utilize legal templates from US Legal Forms to draft repayment plans that comply with bankruptcy laws, allowing them to manage their debts effectively.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A debtor owes $10,000 on a car, but its fair market value is only $6,000. Through a cram down, the debtor can adjust their repayment to $6,000, paying it over a longer period at a lower interest rate.
Example 2: A debtor decides they no longer want their vehicle. They can stop making payments and abandon the plan without facing penalties. (hypothetical example)
Relevant laws & statutes
The primary law governing cram downs is found in the U.S. Bankruptcy Code, specifically under Title 11, Section 1325(a)(5). This section outlines the conditions under which a debtor can modify secured claims in a Chapter 13 bankruptcy.
State-by-state differences
Examples of state differences (not exhaustive):
State
Cram Down Provisions
California
Allows cram downs on vehicles and personal property.
Texas
Cram downs are permitted, but specific exemptions apply.
New York
Follows federal guidelines, allowing cram downs on secured debts.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Description
Difference
Cram Down
Reduces secured debt to the value of collateral.
Focuses on retaining collateral while lowering debt.
Reaffirmation
Reaffirms the original debt obligation.
Debtor agrees to pay full amount, unlike cram down.
Discharge
Eliminates the debtor's obligation to pay certain debts.
Cram down modifies debt rather than eliminating it.
Common misunderstandings
What to do if this term applies to you
If you are considering bankruptcy and believe a cram down may apply to your situation, it is advisable to consult a legal professional. They can guide you through the process and help you understand the implications. You can also explore US Legal Forms for templates to create your repayment plan.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.