Lien cramdown, in the context of bankruptcy, refers to the legal process of reducing the secured portion of a lien when the asset's market value is less than the total amount owed on the lien. Under Section 506 of the Bankruptcy Code, a lien is considered secured only to the extent that the asset has value. If the lien amount exceeds the asset's value, the excess portion becomes unsecured.
Lien cramdown is primarily used in bankruptcy proceedings, particularly under Chapter 13 and Chapter 11 filings. It allows debtors to adjust their secured debts based on the current value of their assets. This process is commonly applied to automobile loans, where the value of the vehicle may be less than the outstanding loan balance. Users can manage this process with the help of legal templates provided by US Legal Forms, drafted by qualified attorneys.
Here are a couple of examples of abatement:
For example, if an individual owes $25,000 on a car loan but the car's current market value is only $15,000, the bankruptcy court may allow the secured portion of the loan to be reduced to $15,000. The remaining $10,000 would be classified as unsecured debt, which can provide significant relief to the debtor.
The primary legal reference for lien cramdown is Section 506 of the Bankruptcy Code. Additionally, the Supreme Court case Nobelman v. American Savings Bank, 508 U.S. 324 (1993), addresses the limitations of lien stripping concerning primary residences.
| Term | Definition |
|---|---|
| Lien Cramdown | Reduces the secured portion of a lien based on the asset's current value. |
| Lien Stripping | Removes the secured status of a lien entirely, typically applied to unsecured debts. |
| Secured Debt | A debt backed by collateral, which can be seized if the debt is not repaid. |
If you are considering bankruptcy and believe lien cramdown may apply to your situation, it's advisable to consult with a bankruptcy attorney. They can help you understand your options and guide you through the process. Additionally, you can explore US Legal Forms for ready-to-use legal document templates that may assist you in filing for bankruptcy.
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Lien cramdown is a bankruptcy process that reduces the secured portion of a lien when the asset's value is less than the lien amount.