Today’s letter is “C” for “Cramdown”.

What’s a cramdown? A cramdown is what it is called when the Bankruptcy Court reduces the amount owed on a secured claim so that it is equal to the value of the property to which it is secured.

In my practice as a Colorado Springs Bankruptcy Attorney, most commonly, cram downs occur when the client has a car or other property, other than his home, which is the collateral for a secured loan.  Here’s an example:

The client purchased an automobile approximately 3 years ago.  His outstanding balance is $15,000.00.  The value of the automobile, according to Kelly Blue Book, is $9,000.00.  When I prepare his Chapter 13 plan, I will ask the court to make a determination that the value of the automobile is only $9,000.00.  Sometimes the creditor will object and claim that the value of the property is higher than $9,000.00.  If that happens, I’m usually able to negotiate with the lender’s attorney and find a middle ground.  If we can’t come to an agreement on the vehicle’s value, my client always has the option of surrendering the vehicle and owing no more on it.  Of course if there is no objection, the $9,000.00 value will be accepted.

Then, instead of paying the creditor $15,000.00 at some high interest rate for the next several years, the debtor will pay, through the plan, the amount of $9,000.00 with nominal interest.

This can really make a difference for people here in Colorado Springs who are severely “upside down” or “underwater” on their car loans.

It should be noted that debts secured by motor vehicles must have been incurred more than 910 days (about 2 1/2 years) before the case is filed.  If the debt is secured by anything other than a motor vehicle, then it must have been incurred more than one year before the bankruptcy case is filed.

Take a look at what some other, non-Colorado Springs Bankruptcy Attorneys are writing about the letter “C”:  Bankruptcy ABC’s