Understanding Vehicle Cram Down in Chapter 13 Bankruptcy

Published on February 21, 2025 by Casey Yontz, Bankruptcy Attorney

What is a Vehicle Cram Down?

A vehicle cram down enables debtors to lower the principal balance of their car loan to match the fair market value of the vehicle. If the car’s value is significantly less than what is owed, this can lead to substantial savings and more manageable monthly payments. The remaining balance beyond the fair market value is reclassified as unsecured debt and may be discharged at the end of the bankruptcy repayment plan.

Eligibility for a Vehicle Cram Down

910-Day Rule: The car loan must have been taken out at least 910 days (approximately 2.5 years) before filing for bankruptcy.
Car Use: The vehicle must have been purchased primarily for personal use.
Ability to Pay: The debtor must be able to afford the restructured payments under the court-approved repayment plan.

How the Vehicle Cram Down Works

The process involves determining the car’s market value, incorporating the reduced loan balance into the Chapter 13 repayment plan, obtaining court approval, and making structured payments. The interest rate on the restructured loan may also be reduced, providing additional financial relief.

Advantages of a Vehicle Cram Down

Lower monthly payments
Avoiding repossession
Reduced interest rates
Potential debt discharge

In Summary

If you’re struggling with high car loan payments and considering Chapter 13 bankruptcy, the vehicle cram down provision may provide much-needed financial relief. Consulting with an experienced bankruptcy attorney can help ensure compliance with all court requirements and lender conditions.

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