Cram Down in Chapter 13

A “cram down” in bankruptcy refers to a legal process used primarily in Chapter 13 bankruptcy cases, allowing debtors to reduce the principal balance of a secured debt to the asset’s current market value. If you owe more on a loan than what the property (like a car, equipment, or sometimes real estate) is worth, you can “cram down” the loan amount to match the property’s value. The process effectively splits the debt into two parts: a secured debt equal to the property’s current market value and an unsecured debt for the remaining balance. It is essential to understand your leftover income after expenses on your Chapter 13 bankruptcy petition if you are trying to avoid paying for the unsecured debt.


An example of an auto cram down

You have a car loan with a balance of $15,000, but the current market value is only $10,000. You could reduce the loan balance to $10,000 by cramming down to the car’s market value. The remaining $5,000 becomes part of your unsecured debt, which the debtor will pay off at a significantly reduced rate through your Chapter 13 repayment plan. 


An example of a home cram down 

You own an investment property (not your primary residence) that you purchased for $800,000. Over time, the property’s market value has decreased, and it is now worth $600,000. However, you still owe $700,000 on the mortgage. In a Chapter 13 bankruptcy, you might be able to cram down the mortgage on this investment property.

Here’s how it works:

  • The mortgage is split into a secured claim and an unsecured claim.
  • The secured claim is adjusted to match the property’s current market value of $600,000. The $600,000 of what you owe is considered secured because the property’s actual value backs it.
  • The remaining $100,000 becomes part of your unsecured debt. Unsecured debts in Chapter 13 bankruptcy are often paid at a fraction of the owed amount, depending on your disposable income and the specifics of your repayment plan.

So, by cramming down the mortgage on your investment property, you reduce the principal balance you’re required to pay back to the creditor for the property’s value. The remainder is treated as unsecured debt, which may allow you to pay much less than you originally owed.

It’s important to note that cram downs are not allowed for mortgages on your primary residence, but debtors can use them for other types of secured debts under certain conditions. Also, there are specific eligibility requirements, such as the 910-day rule for car loans, which requires that the debtor got the car loan more than 910 days before filing for bankruptcy.


Since cram downs can significantly affect both your repayment plans and the rights of secured creditors, they can be complex and contentious. If you’re considering a cram down, please contact me and I can offer a free consultation on your ability to realistically get a cram down.

Frequently Asked Questions: Debt Consolidation in California
How does debt consolidation affect credit scores?

Initially, it might cause a slight dip due to credit inquiries. However, consistent payments can improve your credit score over time.

What is the difference between debt consolidation and debt settlement?

Debt consolidation involves taking a new loan to pay off debts, while debt settlement is negotiating to pay less than you owe. Settlement can negatively impact your credit score.

What are secured vs. unsecured debt consolidation loans?

Secured loans require collateral (like a house or car), usually with lower interest rates. Unsecured loans don't require collateral but typically have higher rates.

Is debt consolidation right for me?

It depends on your total debt, interest rates, credit score, and payment capability. It's suitable if you can pay off your debt within five years and secure a lower interest rate than your current debts.

Should I consider long-term financial planning?

Yes, debt consolidation should be part of a broader financial strategy including budgeting, cutting expenses, and building an emergency fund.

How do Chapter 7 and Chapter 13 bankruptcies in California differ?

Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 allows debt restructuring over a set period, usually three to five years.

Can my spouse's bank account be garnished for my debt?

Bankruptcy laws offer protections against such actions, but specifics depend on individual cases and state laws.

How can I learn more about my options?

Consulting a California bankruptcy attorney can provide clarity. Firms like The Law Offices of Christopher Hewitt offer free consultations to explore debt relief paths.

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