Thursday, January 15, 2015

Chapter 13 - Cram Down


Cram down is the bifurcation or splitting of a car loan into two parts - secured and unsecured. 
This can be significant if you are not required to pay anything to unsecured creditors in your Chapter 13 plan. In that case you would only pay the value of vehicle over 5 years at 6% interest (or less if your contract rate is less). By cramming down the balance to the value of the vehicle, debtors can potentially save thousands of dollars and have a much more affordable vehicle.

In order to be eligible for cram down, the vehicle must have been purchased more than 910 days before filing.

Below is a calculator you can use to enter when you bought your car and see if you are eligible.

The secured portion of the debt is based on the value of the vehicle.  Below is the Kelly Blue Book site where you can calculate the value of your vehicle.

If you are not required to pay unsecured creditors anything in Chapter 13, this division of debt can be particularly valuable.  For example, if you owe $10K on a car that is worth $5K, and have an interest rate of 12% with a payment of $223, your payment would drop to $97 per month because the interest rate would be crammed down to 6% and the balance owed would be crammed down to $5K. 

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