Browse terms
Secured debts and liens
Cram down
Cram down, also spelled cramdown, is the name for a Chapter 13 bankruptcy option that lets the debtor keep collateral over the creditor's objection. The creditor keeps its lien, and the plan pays the creditor the present value of its allowed secured claim, which is the present value of the collateral. 1
Talk to a lawyerHow it works
The idea rests on how the Bankruptcy Code values secured claims. A claim secured by a lien is a secured claim only up to the value of the collateral, and an unsecured claim for the rest. 2
A plan's treatment of a secured claim can be confirmed in one of three ways: the creditor accepts the plan, the debtor surrenders the collateral, or the debtor uses cram down. If the debtor wants to keep the collateral, the creditor must receive at least its value. 1 3
There are important exceptions. For a purchase-money loan on a car bought for personal use within 910 days before filing, the plan generally cannot reduce the secured amount to the car's current value. For other purchased collateral the period is one year. 3 4
A home is treated differently too. A plan may not modify a claim secured only by the debtor's principal residence, although it can cure missed payments over time. 5
Common questions
Does the lender keep its lien while the plan runs?
Yes. The creditor keeps its lien until the underlying debt is paid or the debtor receives a discharge. Periodic payments on the secured claim must be in equal monthly amounts. 3
What happens to the rest of the debt after a cram down?
The part of the debt above the collateral's value is treated as an unsecured claim. A Chapter 13 plan need not pay unsecured claims in full, as long as the debtor pays all projected disposable income over the commitment period and unsecured creditors get at least what a Chapter 7 liquidation would give them. 2 4
Sources
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