Sacramento Bankruptcy: What is a Cramdown and how does it work?

Chapter 13 bankruptcy allows you to lower the amount of many secured debts by a procedure known as a “cram down.”  Secured debts are defined as those that if you do not pay you must return them such as a car, furniture, or house (however, the cram down option is not available for homes).  Typically, when you finance a car or furniture the cost is financed over several months.  Most often, the value decreases faster than the loan is repaid.  A familiar example are cars when you are “upside down”-- that is when the value of the car is less than the amount owed.  These debts can be “crammed down’ in a Chapter 13 bankruptcy filing,  A cram down allows the property to be paid for by paying the actual value of the property plus interest with the remainder being paid by as little as a penny on the dollar.  This provides a powerful tool for Sacramento residents.

Chapter 13 also allows you to limit the amount of interest paid on a secured loan (though, again, mortgage interest rates are excluded).  Car or furniture loans sometimes have predatory interest rates of 15%, 30%, or even higher.  After filing Chapter 13 bankruptcy, those secured debts have interest at the prime rate plus 1-3%, with the rate varying depending on the specific facts of your case.  Sacramento area residents save millions through this important tool.

Combining interest rate reductions with cramming down loans can offer significant cost savings.  High interest rates or loans you cannot afford often make Chapter 13 an attractive option.  A Sacramento Sagaria Law firm attorney looks forward to speaking to you about your Chapter 13 options.

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