The cramdown in a Chapter 13 bankruptcy allows you to reduce the principal balance of a debt to the value of the property it is secured by. With the help of the Chapter 13 bankruptcy cramdown, you will be able to save your car, house, or property.
Debts You Can Cram Down
Not all debts can be crammed down since there are only certain secured debts which you are allowed to. You can only consider a debt as secured if your lender has a security interest in your property and can repossess it if you fail to make your loan payments like mortgages and car loans. In a Chapter 13 bankruptcy, you can cram down your car loan, investment property mortgages, or other personal property loans such as household goods and furnishings. However, you cannot cram down a mortgage on your principal place of residence.
Cramming Your Loans
Most of those who wish to cram down loans use the Chapter 13 bankruptcy to do so. An example of this is when you own a car which is worth $3,000 and you have a loan of $6,000, you’ll be able to cram it down to $3,000 with the repayment plan. The remaining $3,000 of the balance will be lumped in with your other unsecured debts. This means you will end up owning the car free and clear at the end of the bankruptcy.
* 910-Day Rule
If you wish to cram down your car loan, you must have purchased the car at least 910 days which is around 2.5 years prior to the bankruptcy. This prevents people from buying a new car and cramming down the loan right soon after driving it off the lot.
* One-Year Rule
There is a rule when it comes to personal property which is similar to the 910 rule for cars. Before you cram down your loans on your household goods and requires that the goods be purchased at least one year prior to the bankruptcy before a cramdown is allowed.
* Investment Property Mortgages
Most courts require that loans that are crammed down be paid off within the three to five year length of your Chapter 13 plan. This is difficult for those who want to cram down their property mortgages since it will only give them a short amount of time to pay back the mortgage and even the crammed mortgage.
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