What Actually Is A Car Loan Cramdown?
Cramdown means taking whatever the actual loan amount is and reducing it to the current value of the car. Oftentimes, car loans are greater than the value of the car, either because once you drive cars off the lot they reduce in value, or because you originally rolled another car loan into this one, which means you owed more on it even before you drove it off the lot.
How Does The Cramdown Work?
There are two basic types of cramdowns. In a Chapter 7, it’s called a redemption, which means you have to find financing through an individual company that will buy out your current loan. This is accomplished by filing a motion through the bankruptcy court. In essence, you get a new loan. The more common type is under the Chapter 13. In a Chapter 13, if the vehicle was purchased more than 910 days prior to filing the Chapter 13 or if the loan was refinanced or not the original loan, the loan may be crammed down. For example, if the vehicle is worth $12,000, then the bankruptcy court is going to pay only $12,000 as a secured debt even if $20,000.00 is owed on the loan. Thus, cramming down the loan to the current value or $12,000 instead of requiring you to pay the entire loan of $20,000. In this example, the $12,000 would be paid with interest, and then the other $8,000 would be paid as an unsecured debt, which typically do not receive any type of interest and is only paid a fracture of the total.
What About The Remaining Balance On My Car Loan?
The remaining balance would be treated as an unsecured debt. For example, if you owe $20,000 on a car and the value is set at $8000, there is a $12,000 remaining balance, which would be treated as unsecured. In the Chapter 13 bankruptcy, if there is any money being paid to unsecured creditors, then that $8000 would be subject to the same percentage as everybody else. In a Chapter 7, where there is a redemption, the $8000 would be discharged without any payments made towards it.
What Are The Benefits Of Using A Car Loan Cramdown?
The biggest benefit of a car loan cramdown is that you knock off some of the principal balance owed. Instead of owing the full loan, you only owe the current value.
Are There Any Limitations To A Car Loan Cramdown?
You have to have obtained the loan more than 910 days prior to filing your Chapter 13, refinanced the loan, or acquired the loan after the vehicle was purchased in order to qualify for a car loan cramdown. In Chapter 7, with a redemption, there limitations on the age of the vehicle as well as the number of miles on the vehicle because most of the companies that will loan money for redemption have their own sets of criteria that they follow.
Additional Information On Car Loan Cramdown In Ohio
It’s important that you bring all the details of your car loan to your bankruptcy attorney. Whether you purchased the car, refinanced it, or had a car paid off and then got a title loan and put the vehicle up as collateral can all make a difference in whether or not the cramdown is going to be an effective tool to use.
For more information on Car Loan Cramdown In Ohio, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (937) 247-6447 today.
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