Cram Downs Car/ Mortgage/ Personal Property
Jan. 8, 2021
If you are presently making car payments, we may be able to save you a lot of money by filing a Chapter 13 instead of a Chapter 7. For example, if you owe $10,000 on your car and the retail value is $7,000, you may be able to reduce your car loan debt to $7,000 and substantially reduce your car payments. If your car has damage or needs repairs or has high mileage or other problems, this could reduce the value below $7,000 book value, and maybe the car is only worth $5,000. Therefore, in this example, you only have to pay $5,000 as the cram down value of the vehicle. The less your car is worth, the more money you will save.
Interest is required on cram-downs. You can often reduce your interest rate on a cram down to only about 6% in many cases, even if your contract rate of interest is much higher. Keep in mind that the finance company does have the right to object to a cram down. As long as the cram down figure is based on the retail value of the car, you have an absolute right to a cram down in a Chapter 13 bankruptcy and to reduce your interest rate to about 6%. Even if you are not eligible for a cram down, we might be able to reduce your interest rate on your car loan if you are paying more than 7%, so please be sure to discuss these situations with us.
There is one catch. To qualify for a cram down you must have owned the car for at least 910 days (about 2 ½ years) before you can do the cram down. There may be another way to cram down your car even if you have not owned it for 910 days. This pertains to a situation where when you purchased your car, you financed more than just the purchase price because you traded in a vehicle that had a large balance owing, and part of that balance was added to the loan that you financed for purchasing your new car. If you traded in a vehicle when you purchased your car, please make sure to let us know, so we can see if you are eligible to save a lot of money and interest by a cram down.
Cram Down on Mortgages:
There are also times when you can cram down the second mortgage on your house to zero. This means that you can totally wipe out your second mortgage. This can only be accomplished in limited circumstances. We need to see a copy of your mortgage documents before we can advise you whether or not a cram down is possible on your home mortgage. You can also cram down a mortgage on an investment property or rental property that you own, if the property is worth less than your balance due to payoff the mortgage.
Cram Downs on Personal Property:
Cram downs are also permitted on personal property. For example if you have financed a swimming pool, a vacuum cleaner, or other items of personal property, you may normally cram down such an item as long as the item is reasonably necessary to the successful completion of your bankruptcy. If you owe more than the property is now worth, you only pay what it is worth.
If we believe that you qualify for a cram down, we will explore the various options and alternatives that you have. This is a great way to legally save a lot of money through the bankruptcy process.