How The Cramdown Can Be Used As A Tool.

Video Transcribed: Oklahoma City Bankruptcy Attorney Edward Kelley with 888-DEBTLINE answering your bankruptcy questions. We’re number two in the series on Special Powers in Bankruptcy. These are things you may not know you can do in your bankruptcy to help yourself. So today we’re going to talk about cram-down. Generally that’s going to apply in a Chapter 13, but there’s something called redemption in a 7 that is similar. In a Chapter 13, so you’re going to pay everything you can for five years.

Will you get some special privileges along with that? As you recall from previous series, your payment in Chapter 13 is based on what you can pay, not what you owe. However, every secured creditor is entitled, not to everything you owe them, but the value of the collateral. Secure debt means there’s collateral on it, typically a car, but can certainly be other things.

So let’s say, for example, you’ve got a car that you owe $20,000 on. This is not uncommon. It’s worth 5,000 now. So the only secured portion of that debt is the 5,000 that the car is worth. The other 15,000 can be considered an unsecured debt. So you can bifurcate the nature of the debt into the secured and unsecured portion. Now your creditor, the loan company, must receive the 5,000 because that’s the value of the collateral.

Or you can surrender the vehicle and you’re free and clear. You would not owe anything else. Assuming that your plan doesn’t provide to pay any unsecured creditors. Or they’re only entitled to the percentage that you’re paying to unsecured creditors. So if you owed that extra 15,000 and you’re paying 1%, it would be entitled to whatever that is, 150, 1500. I’m not good at math off the top of my head, but you understand the principle.

So another thing that you can do is cramdown the interest rate. There’s a case called Till that gives, it basically establishes that you can cramdown near the prime interest rate. I won’t go into all the intricacies of that, and that may change, but it’s basically a process of proposing a cramdown interest rate and getting agreement. Now there is a catch. If you bought your car with a 910 days, which is shy of three years of bankruptcy, specifically applies to an auto.

You can’t do all this. You can still potentially cramdown the interest rate, but you can’t get rid of the other portion. That’s to keep people from buying a really expensive car and then filing a Chapter 13, which certainly would happen if that was allowed. And on other personal property, you’ve got one year cap. So if you bought it within a year, you can’t do that.

So that’s an overview of cramdown, the counter part in Chapter 7 is called redemption. Obviously you’re not making payments for years, so you’ve got one shot at it. Basically, you’re going to have to get a gift from somebody, but you can cramdown the value of your car. Again, you owe 15,000 on a $5,000 car, you can pay the creditor the 5,000, potentially, and keep the car paid off. So most people in a Chapter 7 don’t have those resources, but that’s kind of a big deal.

So there’s some extraordinary powers. Be back momentarily with another video. We’re going to talk about the automatic stay. See you soon. Again, you can always reach me at 1-888-Debtline or edward@wirthlawoffice.com or on Facebook at our group called Oklahomans for Debt Relief.