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Simple English definitions for legal terms
cram-down
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A quick definition of cram-down:
Term: Cram-down
Definition: Cram-down is when a court makes a creditor accept new loan terms during bankruptcy. This is usually done in Chapter 13 bankruptcy to reduce the amount owed to a creditor to the value of the collateral. For example, if someone bought a car worth $25,000 with a loan, but the loan grew bigger with interest, cram-down would reduce the debt to $25,000. Cram-down cannot be used for a mortgage on a person’s home, but it can be used in some situations in Chapter 11 bankruptcy.
A more thorough explanation:
Cram-down refers to a legal process where a court forces a creditor to accept new terms of a loan in bankruptcy proceedings. This tool is most commonly used in Chapter 13 bankruptcy cases to reduce the debt owed to a creditor to the value of the collateral.
Let's say someone bought a car worth $25,000 with a loan. Over time, the loan would accrue interest, and the overall loan size would increase. If the borrower files for bankruptcy, they may be able to use cram-down to reduce the debt owed to the creditor to the value of the car, which is $25,000. This means that any debt above $25,000 would be eliminated, and the borrower would only have to pay back the original value of the car.
It's important to note that cram-down cannot be used for a mortgage on a person's dwelling. However, it can be used in Chapter 11 bankruptcy in some situations.
The example illustrates how cram-down works in a Chapter 13 bankruptcy case. By using cram-down, the borrower can reduce their debt to the value of the collateral, which is the car in this case. This can help the borrower to manage their debt and make it more manageable to pay back. However, it's important to note that cram-down is not available for all types of debt and is subject to certain limitations and restrictions.