Cramdown
What is a cramdown in Chapter 13 bankruptcy?
A cramdown is reducing a secured debt, in a Chapter 13 plan, to the current value of the collateral instead of what's actually owed. For car loans, though, this is usually blocked: the 910-day rule stops it on any vehicle loan taken out within about 2.5 years of filing, which covers most cars people are still financing when they file.
Key takeaways
- Cramdown means splitting a secured claim into a secured portion, equal to the collateral's current value, and an unsecured portion covering the rest, then paying only the secured portion in full through the Chapter 13 plan.
- For most car loans, cramdown is blocked outright by the 910-day rule, which requires paying the full remaining balance on any personal-use vehicle loan taken out within about 2.5 years of filing.
- Cramdown can still apply to a car loan older than 910 days at filing, or one that doesn't meet the personal-use condition.
- Cramdown is a Chapter 13 tool. Chapter 7 has a different mechanism for reducing a car debt to the vehicle's value: a lump-sum 722 redemption loan.
- Where cramdown does apply, the reduced secured amount is repaid through the plan with interest, at a rate the bankruptcy court sets, not the original contract rate.
What is a cramdown?
A cramdown is splitting a secured debt into two pieces inside a Chapter 13 plan: a secured piece, capped at the collateral's current value, and an unsecured piece, covering whatever is owed above that. You pay the secured piece in full, through the plan, and the unsecured piece is treated like your other unsecured debt, often paid at cents on the dollar or not at all.
The general Chapter 13 idea is that a secured creditor is only entitled to be paid what the collateral is actually worth. Anything you owe beyond that is functionally unsecured, the same as a credit card balance would be.
Why can't most people cram down a car loan?
Because the 910-day rule blocks it. If you took out the loan within 910 days — about 2.5 years — of your Chapter 13 filing date, and the vehicle was bought for your own personal use, the loan is exempt from cramdown entirely. You have to pay the full remaining balance through the plan, not the car's current value. See the 910-day rule for exactly how that provision works.
This is one of the most common pieces of confusion about car loans in bankruptcy: people hear "cramdown" and assume it applies to their car, when for most filers who financed a vehicle in the last two to three years, it does not.
When can a car loan actually be crammed down?
| Situation | Cramdown available? |
|---|---|
| Vehicle loan taken out more than 910 days before filing, personal use | Generally yes |
| Vehicle loan taken out within 910 days of filing, personal use | No — full balance must be paid |
| Vehicle bought mainly for business use | Cramdown rules apply regardless of the 910-day count |
| Loan already paid down close to the car's value | Cramdown may not help much even if technically available |
The last row is worth noting. If your loan balance and the car's value are already close, the practical benefit of a cramdown shrinks, because there isn't much difference left to reduce.
How does the payment actually change if cramdown applies?
The secured portion drops to the car's current value, and that portion is repaid through your Chapter 13 plan at an interest rate the bankruptcy court sets, not your original loan rate. The gap between what you owed and what the car is worth becomes unsecured debt in the same plan.
The dollar effect varies enormously by how underwater the loan was to begin with, which is why a bankruptcy attorney runs these numbers case by case rather than a general article estimating them.
Where this fits with the rest of your bankruptcy
Cramdown is one lever inside a much larger set of decisions in a Chapter 13 case, and it interacts with your overall plan payment and your other secured and unsecured debt. See car loan after bankruptcy for how this fits into financing decisions before, during, and after a bankruptcy case.
Common questions
Can I cram down my car loan in Chapter 13?
Usually not, if you financed the vehicle within about 910 days — roughly 2.5 years — before filing and it's for your personal use. That's the 910-day rule, and it blocks cramdown on most car loans people still owe money on.
What debts can be crammed down, then?
Cramdown is more available on other secured debts, and on car loans older than 910 days at filing. Real estate secured only by your primary residence generally cannot be crammed down at all, under a separate rule.
If cramdown applies, how much do I actually pay?
The secured portion is reduced to the vehicle's current replacement value, not the loan balance, and that reduced amount is repaid through the plan with court-set interest. The remainder becomes unsecured debt, treated like your other unsecured creditors' claims.
Is cramdown the same as a 722 redemption loan?
No, though the underlying idea — pay the car's value, not the balance — is similar. Cramdown is a Chapter 13 plan mechanism paid over years; a 722 redemption loan is a Chapter 7 tool paid as one lump sum.
Who decides the car's 'current value' for a cramdown?
Typically it's negotiated between the debtor and the lender, based on evidence like retail or wholesale valuation guides, and the bankruptcy court resolves it if they disagree. There's no single official number both sides must accept.
Sources
- Bankruptcy Basics — Administrative Office of the U.S. Courts