A Chapter 13 car cramdown lets you pay a car lender the vehicle's present value, rather than the full loan balance, through your repayment plan. It is only available for certain loans, mainly those older than 910 days, and if you and the lender cannot agree, the bankruptcy judge sets the value and interest rate.
If your car loan is upside down and you are already behind on other bills, call (415) 754-0115 to schedule your free consultation, or send a short note through our contact page, and an attorney can look at whether your loan qualifies.
What a Chapter 13 car cramdown actually does
Most car loans are secured debts: the lender has a lien on the title. Under the Bankruptcy Code, a secured claim is generally only secured up to the value of the collateral. If you owe more than the car is worth, the claim can be split into two parts.
- The secured portion equals the car's value. In a cramdown, your plan pays this amount in full, with interest, over the life of the plan.
- The unsecured portion is the rest of the balance. It is grouped with credit cards, medical bills and other general unsecured debt, which often receive only part of what they are owed under the plan.
The lender keeps its lien until the secured portion is paid through the plan and you receive your discharge (or the underlying debt is paid). Once that happens, the lien is released and the title is yours.
The 910-day rule and other limits on cramdown
Congress limited cramdown in 2005. A short paragraph added after Section 1325(a)(9) of the Bankruptcy Code, often called the "hanging paragraph," blocks cramdown for many car loans.
Loans that usually cannot be crammed down
If the loan was used to buy the vehicle, the vehicle was bought for your personal use, and you took out the loan within 910 days (roughly two and a half years) before filing, the lender's whole claim is generally treated as secured. You cannot reduce the principal to the car's value.
Loans that may qualify
- Purchase-money car loans more than 910 days old on the filing date.
- Vehicles bought mainly for business use rather than personal use, depending on the facts.
- Some loans that were not used to buy the car, such as certain title loans or cross-collateralized credit union loans, depending on how the lien arose.
These categories turn on documents, dates and how Ninth Circuit courts read the statute. Bring your purchase contract, any refinance documents and your most recent statement to a consultation.
A note on refinanced car loans
Refinancing can change how a loan is treated. Whether a refinanced loan still counts as purchase-money, and which date starts the 910-day clock, can depend on the specific transaction. This is a point an attorney should review before you rely on it.
How the car's value and interest rate are set
For individuals in Chapter 13, the Bankruptcy Code values personal-use property at replacement value: what a retail merchant would charge for a vehicle of that kind, considering its age and condition, without deducting selling costs. In practice, the debtor and the lender often start with published pricing guides and adjust for mileage, damage and condition.
The interest rate on the crammed-down amount is not necessarily the contract rate. In Till v. SCS Credit Corp., the U.S. Supreme Court approved a formula that starts with the national prime rate and adds a risk adjustment. Even when the 910-day rule prevents a principal reduction, some courts still allow the interest rate to be adjusted under this approach, so a newer loan is not always left untouched.
If the lender disagrees with your proposed value, it can object to the plan. The dispute is then resolved by agreement or by the bankruptcy judge, sometimes with an appraisal.
When a cramdown may or may not make sense
A cramdown is one tool inside a larger plan, not a standalone program. Whether it helps depends on the numbers and on your goals.
Situations where it often comes up
- You owe much more than the car is worth and the loan is older than 910 days.
- You need the vehicle to get to work in Pleasanton, Dublin, Livermore or elsewhere in the Tri-Valley, so surrendering it is not realistic.
- Your contract interest rate is high and a court-set rate would ease the monthly payment.
Reasons to think twice
- The car is unreliable or near the end of its life, so paying even its value over several years may not be worth it.
- Your plan must pay unsecured creditors in full anyway, which can reduce the practical benefit of moving part of the balance to the unsecured class.
- The loan is very new and clearly within the 910-day window.
Our bankruptcy practice handles Chapter 13 plans for individuals and small business owners across Alameda and Contra Costa Counties. Attorney Bob Somal can review the loan file, the car's condition and your budget together, so any cramdown proposal fits the rest of the plan rather than being bolted on.
How a cramdown fits into the rest of your plan
The car is paid through the trustee as part of your monthly plan payment. That means the plan has to be feasible: your income after reasonable expenses must cover the car, any mortgage arrears, priority debts such as recent taxes, and whatever unsecured creditors are entitled to receive. Our overview of the Chapter 13 repayment plan explains how those pieces are ordered.
You must also keep the car insured. Lenders routinely ask the court for relief if coverage lapses, and missing plan payments can put both the car and the case at risk. If the main concern is a repossession that is about to happen, our article on whether bankruptcy can stop car repossession covers the automatic stay and timing.
Finally, a cramdown is different from simply keeping the car. Our guide to keeping your car in bankruptcy compares the options under Chapter 7 and Chapter 13.
Frequently asked questions
Can I cram down a car loan in Chapter 7?
No. Cramdown of a car loan is a Chapter 13 tool. In Chapter 7, the main options are usually to keep paying under a reaffirmation agreement, redeem the car with a lump-sum payment of its value, or surrender it.
What if I am only a few months past the 910-day mark?
The date of filing controls. If waiting a short time would move a loan outside the 910-day window, an attorney can weigh that against the risk of repossession, garnishment or a foreclosure while you wait.
Does the lender have to agree to the cramdown value?
No, but it can object. If the parties cannot agree, the bankruptcy judge decides the value and the interest rate when ruling on confirmation.
What happens to the car if my case is dismissed?
If a Chapter 13 case is dismissed before discharge, the cramdown generally does not stick. The lender's lien and the original loan terms can come back, less what was paid, so finishing the plan matters.
A Chapter 13 car cramdown can be useful, but only when the loan qualifies and the rest of the plan works. To talk through your loan, call (415) 754-0115 to schedule your free consultation, or reach us through our contact page. We will look at your contract, your budget and your goals, and explain your options in plain language.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.