A cram down is a provision in a Chapter 13 Plan that provides for payment of only the fair market value of the vehicle securing an auto loan to the secured creditor. This can only be done if the age of the loan is more than 910 days old on the date the case is filed. The balance on a crammed down auto loan is discharged once the Debtor completes the Plan.
The 910 Day Rule
There are some legal and practical limitations to the cram down. Most obvious is that the loan has to be at least 2 ½ years old ( or 910 days) on the date the case is filed. Also, the Debtor or co-Debtor(s) on the account must be eligible under 11 U.S. Code Section 1328 to receive a Discharge in the case. If the Debtor has prior case filings under Chapter 7, or a prior Ch 13 case where a discharge was received within certain lookback time periods, then in that situation the vehicle loan cannot be “crammed down” even if it is older than 910 days on the date the case is filed. They key issue here is whether the Debtor is eligible to receive a Discharge in the case. A “dischargeable” Chapter 13 case is one where the Debtor is not required to pay all of his or her general unsecured debts during the administration of the Plan.
Part of Secured Debt Treated as Unsecured
Another issue which may get in the way of “cramming down” a car loan is a case where by reason of the Chapter 13 “Means Test” ( Official Bankruptcy Form 22(c) ) the Debtor is required to pay 100% of the Debt back to general unsecured creditors. In this type of case, the loan can still be bifurcated into “secured” and “unsecured,” with interest being required only on the secured portion of the debt. The auto loan would still need to be more than 910 days old in this situation, and the creditor can claim WSJ Prime Rate plus 1-3 points for the interest rate ( Where Prime Rate is 3.5% on date of Filing, interest rate on the secured part of the claim inside the plan would be between 4.5% to 6.5% as negotiated with the creditor, usually via their legal counsel.
If you have further questions about whether your auto loan can be “crammed down” in a Chapter 13 case, please do not hesitate to contact Bankruptcy Attorney Kevin Ryan at 251-431-6012 or by sending an email to him through this website.