If you are considering filing a Chapter 13 bankruptcy, you may be concerned that your creditors will be able to dictate the terms of your repayment plan to you. You may fear they may reject the offers you make and force you to accept financial conditions that are too challenging.
The cramdown rule may help you avoid this situation. It’s a section of bankruptcy law that gives the court the right to override the wishes of the creditor and force them to accept terms they might otherwise refuse.
When is “cramdown” used?
One reason you might want to call on this rule is if you consider the amount the creditor is demanding you pay does not reflect the reality of the current market value. For example, they are trying to get you to agree to paying $20,000 on a car when the car is actually only worth $15,000.
Typically, a cramdown is only allowed to be used for secured debts, not unsecured ones. However, it’s important to note that a court will not normally allow you to use the rule against an outstanding mortgage on a primary residence – which is the principal secured debt many people have.
There are other limits to the cramdown rule, as well. A court cannot force a creditor to accept a ridiculously low repayment amount, for example. There are also minimum time amounts you must wait after purchasing the item before applying to use a cramdown in a bankruptcy.
If you do try to pursue a particular arrangement via a cramdown rule, it is important to know that the creditor may still look for ways to challenge your plan. Experienced legal guidance can help you understand more about how Chapter 13 works and whether it is the most suitable option for your unique situation.