Chapter 13 bankruptcy cramdown rules have the potential to reduce what you owe on certain debts secured by collateral. As a debtor in Michigan, you could benefit from a cramdown when formulating a repayment plan. This court-ordered procedure forces some creditors to accept payment for the fair market value of the property instead of the outstanding loan balance.
What property qualifies for a cramdown?
A bankruptcy court may decide to alter secured loans for automobiles, furniture and other personal property that you have owned for specific amounts of time. For example, you must have a vehicle for at least 910 days before the law allows you to attempt a cramdown that would reduce your debt to the fair market market. For other personal property, you must have been in possession of it for at least a year. Cramdown rules, however, do not apply to the mortgage on your primary residence.
Will creditors fight cramdowns?
During a Chapter 13 bankruptcy proceeding, creditors of secured loans normally hope to collect the full debts owed. These lenders file their claims with a bankruptcy court, but the court has the option of ignoring their requests for full payment.
A bankruptcy court may take this action because it enables the creation of a repayment plan that gives secured creditors some money. Realistically, if a bankruptcy court forces you to sell certain property, the creditor would only receive market value anyway. For this reason, a bankruptcy judge has the power to order creditors to accept cramdowns for the sake of resolving debts under the terms of Chapter 13.
After analyzing their financial options, debtors may choose Chapter 13 as a way to protect some assets. This bankruptcy chapter allows them to resolve many debts without always forcing them to sell their nonessential property.