Redwood City Bankruptcy: The Cram Down

One of the major benefits of Chapter 13 bankruptcy is that is allows debtors to lower the amount owed on secured debts, a process called “cram down”. Secured debts are debts that if an individual does not pay, he has to return the item.

In most cases, the value of an item a person finances decrease faster than the loan is being repaid. For instance, a car purchased three years ago is now worth $6,000, but the amount still owed is $12,000. This is known as being “upside down”. Yet, debts like these can be crammed down in Chpater 13 by paying the value of the property in full plus interest with the remaining balance paid as little as a penny for every dollar owed.

Additionally, under Chapter 13 bankruptcy, the interest on a secured loan can be reduced, but interest on a mortgage cannot be reduced. Cramming down on a secured loan and reducing the interest rate can save a lot of money.

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