How to Cramdown Secured Debt in a Chapter 13 Bankruptcy of Assets Other than Your Home or Vehicle in Riverside or Orange County.
- Do you have a secured creditor, i.e. one in which has rights to collateral? Your obligation to pay a secured creditor is secured by the rights the creditor has to take possession and/or ownership of the collateral if you don’t make your payments on the debt. In bankruptcy, such secured creditors have a lot more leverage over you.
- If you want to keep the collateral, Chapter 7 is one option, but in many circumstances a Chapter 13 Bankruptcy in Riverside or Orange County can give you more options than a Chapter 7 bankruptcy.
- Secured debts in which the collateral is your home or your vehicle are governed by additional restrictions. These two types of assets are are addressed in another blog.
- Here, we’re talking about other such secured debts such as furniture and appliance purchases, money loans secured by your own personal assets, and business loans secured by business and/or personal assets.
Cramdown in Chapter 13 Bankruptcy:
- This option is available only in Chapter 13 bankruptcy – not Chapter 7.
- In a Chapter 13 Bankruptcy, if the fair market value of the collateral securing a secured debt is worth less than the balance on that secured debt, you may be able to cramdown the debt.
- The secured portion, the amount of the debt up to the fair market value of the collateral, and the unsecured part—the rest of the debt beyond the value of the collateral.
- You pay 100% of the fair market value of the collateral, i.e. the secured portion.
- You pay less than 100% of the remaining unsecured portion. Specifically, you pay the percentage that the other unsecured creditors are paid. This can be as little as 0%. Thus, your debt has been reduced to fair market value of the secured portion and possible, as little as 0% of the unsecured.
- E.g. You have secured debt in the amount of $1,500 for a television you purchased over 1 year ago. If the fair value of that refrigerator is $1,000, then the secured portion of that debt is $1,000, and the remaining $500 is considered unsecured. In a Chapter 13 Bankruptcy, if your unsecured creditors are paid 0%, then your debt is crammed down from $1,500 to only $1,000 ( + interest on the secured portion). The $500 unsecured debt is unpaid and discharged.
Section 1325(a) Only Applies to Collateral Other Than Your Homeor Vehicle.
- “[I]f the debt was incurred during the 1-year period preceding [the bankruptcy] filing” then you cannot do a cramdown on collateral that is neither your home nor your vehicle. Section 1325(a) of the Bankruptcy Code.
Contact us today to discuss your options with an expert Riverside bankruptcy attorney. We’ll help you decide whether you qualify for a cramdown, chapter 13 bankruptcy or possibly a chapter 7 bankruptcy in Riverside, San Bernardino or Orange County.
