The following article was authored by Justin Coke , a Columbia, MO attorney. More information about Justin and his firm can be found on his website: http://www.justincokelawfirm.com/ He can also be reached by phone at (573) 886-8919.
Cramdown Defined
The term cramdown comes from the fact that creditors hate them and so they have to be crammed down their throat. A cramdown occurs when the debtor files bankruptcy and wants to pay a secured creditor what their security is worth rather than the balance of the loan.
A cramdown happens in bankruptcy when the balance of a loan is greater than the value of the property. Say you owned a mobile home. The mobile home is worth $15,000 and you still owe $33,000. Instead of paying the $33,000, you can cramdown the mobile home and only pay $15,000. The interest rate is also generous. At the time of writing the default rate in the Western District of Missouri is 4.52%. Paying less interest on a smaller balance is a very powerful weapon. A cramdown can easily save you tens of thousands of dollars.
There are a few exceptions to the cramdown rules. You can’t cram down a car loan for 910 days (2 1/2 years) after you bought it. It can be impossible or very difficult to cramdown your personal mortgage. But if you have a mobile home, or a car or other property that is worth less than what you owe on it, the cramdown can be a powerful weapon in the battle to get you a fresh start.