What is an automobile cramdown?
A cramdown is applied in a chapter 13 case. In general, a secured creditor must be paid in full if a debtor is keeping the collateral (property). In other words, typically, someone who wishes to keep an auto, whom is behind with their finance payments, must pay the arrears through the bankruptcy trustee payments while still making their regular monthly payments on a timely basis.
However, under certain circumstances, a person may be able to keep his auto without paying the full amount of the secured auto loan. A cramdown permits a person to keep their auto by paying through the bankruptcy plan only the retail fair market value of the auto, plus a fair rate of interest. The value is determined as of the time of the bankruptcy filing. The interest rate is based on a formula that is relative to the prime rate, as of the filing date.
Retail Auto Value $10,000.00
Auto Financing Payoff $20,0000
Contract Interest Rate 8%,
If the debtor is able to cramdown the secured interest in the auto, the debtor would be permitted to pay only $10,000.00, plus a fair interest rate, amortized over a three to five year chapter 13 plan. The allowable interest rate at this time is about 5.25%. In the above example, a debtor is permitted to keep the auto by paying $11,391.59, through the bankruptcy plan, over the life of the plan.
The criteria for a chapter 13 cramdown is as follows:
- Can cramdown any commercial or non-personal vehicle;
- Can cramdown a personal vehicle if the financing was obtained at any time, other than at the time of purchase;
- If the auto was purchased with the financing for personal use, the auto must have been purchased at least 910 days or more, prior to the bankruptcy filing date.
You may contact NJ bankruptcy lawyer Robert Manchel at 1 (866) 503-5655 to discuss your bankruptcy questions.