One of the many advantages of Chapter 13 bankruptcy is the ability to lower debts through ‘cramdowns.’ Your Cincinnati bankruptcy attorney can explain the term in more precise detail, but a cramdown essentially allows the debtor the ability to reduce the amount owed on a debt. This unique feature of Chapter 13 bankruptcy allows thousands of people each year the ability to keep the things that are important and valuable to them, such as cars, investments, and properties.
What Debts Qualify for a Cramdown?
While a cramdown gives you the ability to reduce certain debts, there are other debts that cannot be reduced through this method. Your Cincinnati bankruptcy attorney will advise you to what exactly you can cramdown in Chapter 13 bankruptcy, but the basics include car loans, personal property loans (home goods, furniture, etc.), and investment property mortgages. Your primary residence mortgage cannot be reduced under a Chapter 13 cramdown.
How Does it Work?
A cramdown basically reduces your loan amount or debt to the value of the property securing it. Let’s look at an example of a typical car loan to better understand the concept:
Let’s say your loan balance on the car you own is $20,000, but the value of the car is only $10,000. Under Chapter 13 bankruptcy, you are able to reduce the amount you owe on the car loan from $20,000 to the car’s value of $10,000. The excess payment will be thrown in with your other unsecured debts. You will likely only have to pay a fraction of the unsecured debts once your repayment plan is figured out.