The Vehicle Cramdown Process in Bankruptcy

Vehicle Cramdown

If you’re struggling to meet your financial obligations and have decided that a personal bankruptcy filing is your best option, you want, if possible, to structure the bankruptcy in such a way that you get to keep your car, so that you can get to and from work. There’s a special procedure, known as a “cramdown,” that allows you to keep your vehicle and lower the amount you still owe.

Here’s how it works. Under the bankruptcy laws, there’s generally a distinction between secured and unsecured debt. As a general rule, you can’t discharge secured debt and keep the property used to secure it. Unsecured debt, however, can almost always be discharged. With a motor vehicle loan, it’s generally the fair market value of the car that is secured by the note. Anything above that amount is technically not secured.

Accordingly, you can seek to “cramdown” the amount due on your vehicle to its fair market value. You must, however, meet specific requirements:

  • You must be “under water” on your loan—Essentially, this means that you must owe more than your vehicle is worth.
  • You can only do a cramdown through Chapter 13—You cannot use a cramdown to permanently rid yourself of the debt on an automobile. As a part of the Chapter 13 process, you may be able to extend the term of your loan, reduce the interest rate and even waive accrued fees and penalties, but you cannot discharge a secured debt.
  • You can’t cramdown a loan for a recent purchase—A motor vehicle loan can only be crammed down if it was signed more than 910 days prior to your bankruptcy filing.

Contact Heath, TX Bankruptcy Attorney Carrie Weir

I offer a free initial consultation to all potential bankruptcy clients. Contact my office by e-mail or call me at 972-772-3083 for a private meeting. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.

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