11 U.S.C. § 1322(b)(1) allows debtors in a Chapter 13 repayment plan to “. . . modify the right of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence…” This modification is known as a “cramdown” and subject to certain rules. Specifically, the 910-day and 365-day rules found in the hanging paragraph of § 1325 (a)(9).
Cramdowns may allow Chapter 13 debtors to modify important loan provisions such as the loan balance, loan interest rate, and loan term despite any challenge from the holder of the secured claim. A cramdown can reduce the balance of a motor vehicle loan to the secured portion of the debt since this is the vehicle’s “replacement value” at the time.
The cramdown of motor vehicle loans is common in Chapter 13 plans. To cram down a motor vehicle loan under the 910 day rule, the collateral must have been purchased at least 910 days, or approximately 2 1/2 years, before the present bankruptcy case was filed. The law’s purpose is to prevent debtors from purchasing a new vehicle and then immediately cramming down the loan in a Chapter 13 bankruptcy case.
A 365-day rule applies to all other types of personal property such as household goods and furnishings. These items must be purchased at least one year prior to the bankruptcy filing to qualify for a Chapter 13 cramdown.
Please note the following example of a cramdown:
*At the time of the filing of the Chapter 13 bankruptcy case, the value of a motor vehicle, collateral for a loan, is $12,000. The loan balance is $20,000 at this time.
*A Chapter 13 debtor may cram down the loan to $12,000 in a Chapter 13 repayment plan provided the vehicle was purchased more than 910 days before the case filing.
*The remaining $8,000 of the balance of the loan will be included with and treated like other unsecured debts in the Chapter 13 case. In most cases, Only a portion, if any, of this unsecured debt will likely be paid in a debtor’s Chapter 13 plan, with the remainder discharged when the Chapter 13 plan is completed. As far as the debtor is concerned, he or she will own the motor vehicle free and clear once the bankruptcy is completed.
Investment or commercial mortgages on any properties that are not personal residences may be crammed down and are not subject to the requirements and limitations of the 910- and 365-day rules. It’s important to remember that the length of a Chapter 13 plan is limited to no more than five years, and thus a debtor would be required to repay what may be a high payment amount in a period of time less than the original loan term.
Cramdowns require the knowledge of specific details of a secured claim and the application of applicable bankruptcy law. Contact H. Lehman Franklin, P.C. today for a free consultation and case evaluation. Lehman Franklin and Kimberly Ward will give you the best representation possible in your legal matter. Our office is located at 127 North Main Street in Statesboro, GA (30458). We proudly serve Bulloch County, as well as the surrounding counties of Chatham, Candler, Evans, Bryan, Effingham, Screven, and Jenkins. Contact our office by telephone at 912-764-9616, by email at firstname.lastname@example.org, or check us out online at hlfranklin.com. We’re available to meet your legal needs Monday through Friday from 8:30 AM until 5:30 PM.