What is “cramdown” in a Chapter 11 bankruptcy?

Cramdown in a Chapter 11 bankruptcy is a legal action that can be taken when a debtor (i.e., the person filing for bankruptcy) owes more on a debt than the collateral (i.e., the property or asset securing the debt) is worth. In this situation, the court may reduce the amount of debt owed to match the value of the collateral. This reduction in debt is known as a “cramdown.” For example, if a debtor owns a car worth $10,000 but owes $12,000 on the loan, the court may allow the loan to be “crammed down” to $10,000. This means that the debtor only has to pay back the amount of the collateral, rather than the full amount of the debt. Cramdown can be used in Chapter 11 bankruptcies to reduce the amount of debt owed and make the repayment process more manageable. However, creditors may challenge a cramdown, which may result in a long and complicated court process. Cramdown is only available in certain types of Chapter 11 bankruptcies and is not available in Arizona. In Arizona, Chapter 11 bankruptcy is mainly used to reorganize debts, rather than reducing them through cramdown.

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What is “cramdown” in a Chapter 11 bankruptcy?

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