Cram downs in California Chapter 13 Bankruptcy

Asset Loans and Restrictions under California Bankruptcy Laws

One of the main advantages of filing for a Chapter 13 bankruptcy protection as compared to Chapter 7 is the ability to cram down debts secured by a property. Cramming down of a debt involves the reduction of the balance owed in line with the value of the asset that is attached to it.

Any debt secured by the property under California Chapter 13 bankruptcy laws can be crammed down. These include investment property, mortgages, furniture as well as household items. The term is, however, commonly associated with car loans as such assets are easy to evaluate.

Cramming down of debts under California Bankruptcy law is subject to eligibility assessment. Mortgages for principal residences, for instance, cannot be crammed down unless they meet the court’s requirements. This makes these types of debts the harder to cram down as compared to car loans and other similar assets.

For a secured debt to be eligible for cram down, the lender has to be receiving a security interest in the asset which the debtor owns. The creditor also has to have the right to take back the asset if the debtor is unable to keep up with the loan repayments under the California laws.

There are several different reasons why people seek to cram down their debts to a creditor. Cram downs for instance, increase the payment periods by reducing the monthly payment that you make on loan. In such a manner, the debtor will gain some degree of relief in their monthly obligations especially when they are dealing with several different debts.

Crammed down debts have been known to last up to five years, the entire period of a Chapter 13 bankruptcy stay. In other instances, bankruptcy courts may intervene to have your interest rate reduced and ensure that you own the asset after successful loan completion.

Cram downs, however, are not without their limitations. California bankruptcy law, for instance, prevents cram downs for recent purchases to protect lenders’ interests. Thus one would be required to have owned the asset for at least a specific length of time before filing for bankruptcy.