What is “cramdown” in a Chapter 11 bankruptcy?

Cramdown in a Chapter 11 bankruptcy is a process where a court may modify the terms of a secured or unsecured debt in order to provide the debtor with more favorable terms. This type of debt restructuring can only be used in Chapter 11 bankruptcies, and it requires the creditor to accept payments under the modified terms. In order for a court to approve a cramdown, the debtor must show that the repayment plan they are proposing is “fair and equitable.” This means that the creditors must be able to receive at least some value from the arrangement. The amount they can receive is typically determined by the court and could be less than what was originally owed. In California, in order for a cramdown to be approved, the debtor must prove that the portion of the debt that is not being paid in full is unsecured. This means that the creditor must not have any type of security interest in the property that is being used to pay the debt. Cramdown is a powerful tool in a Chapter 11 bankruptcy, as it enables the debtor to modify the terms of their debt, potentially saving them a large amount of money. It also helps to provide creditors with some sort of value, even though they may not be receiving the full amount of their debt.

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What is “cramdown” in a Chapter 11 bankruptcy?

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