Cram Down of a Car Loan

by DeLadurantey Law Office, LLC on March 26, 2014

Black car frontIf you are like most consumers, you owe more on your vehicle than it is worth. If you are also facing overwhelming debt on other loans and you have a regular source of income, filing a Chapter 13 bankruptcy may be advantageous to you. The Chapter 13 process allows a debtor to “cram down” a vehicle loan and reduce the loan balance and interest rate on the loan.

As soon as you drive a vehicle off the car lot, it begins to depreciate in value. Therefore, it is common for individuals to owe more than the value of the auto, also referred to as being “upside down.” A Chapter 13 debtor can reduce the balance on the vehicle loan to the amount of what the car is worth. To be eligible to cram down your car loan, you must have bought the car at least 910 days (approximately 2.5 years) prior to filing your bankruptcy case.

How does the cram down work? When you create your Chapter 13 plan, you propose that the lender should be paid the value of the automobile rather than the full amount due on the loan. In other words, if you owe $5000 on your pickup and it is only worth $3500, you can provide that your lender has a secured claim in the amount of $3500 and an unsecured claim in the amount of $1500. The reasoning is that if your lender repossessed your vehicle and sold it, the lender would only be able to recover $3500 since that it is what it is worth. By classifying the $1500 as unsecured, you will likely only pay a small percentage of this amount under the plan.

When you cram down a car loan, you usually can also lower the applicable interest rate. The rate under your contract with the lender can be lowered to the interest rate determined by your specific bankruptcy court, which is typically the prime interest rate with a little extra added on.

To learn more about how to cram down your vehicle loan, contact DeLadurantey Law Office, LLC.

Contact The “Milwaukee Bankruptcy Attorneys,” DeLadurantey Law Office. LLC.   DeLadurantey Law Office focuses on Chapter 7 and 13 bankruptcy, debtor’s rights, debt negotiations, debt relief, mortgage loan modifications, and foreclosure defense.  A “defender of the little guy, “DeLadurantey Law Office serves the following location – Milwaukee, South Milwaukee, West Milwaukee, Waukesha City, Waukesha Town, Kenosha, Racine, and all other municipalities in Milwaukee County, Waukesha County, Kenosha County, and Racine County.  We can be contacted by phone: (414) 377-0518 and can be found on the Internet and on Facebook.


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