What is “cramdown” in a Chapter 11 bankruptcy?

Cramdown is a term used to describe a Chapter 11 bankruptcy protection strategy. This strategy allows a debtor to alter the terms of existing secured debts and reduce the amount owed. It is only available through Chapter 11 and not with Chapter 7 or Chapter 13. Cramdown entails reducing the debt and interest rate, as well as changing the payment plan and other terms and conditions. This is very beneficial to the debtor because it allows them to keep valuable assets that they may otherwise be forced to surrender in a Chapter 7 bankruptcy. Additionally, if a Chapter 11 debtor can obtain creditor consent to the proposed cramdown, they can get rid of certain unsecured debt altogether. In Florida, a cramdown of a mortgage can be performed in Chapter 11 bankruptcy cases. In a Chapter 11 cramdown, the debtor must disclose all income and expenses to the court in order to determine the amount of debt that can be reorganized. The debtor must also prove that the value of the property is lower than the amount owed on the mortgage. Once this is established, the debtor can then seek a reduction of the principal or interest rate owed on the loan. Cramdown can be a highly beneficial strategy for the debtor as it can provide them with some significant debt relief. However, it is important to note that this is a complex process and obtaining approval for a cramdown can be difficult. It is always recommended that anyone considering a cramdown seek the advice of a qualified bankruptcy attorney who can help them fully understand the implications of such a move.

Related FAQs

What is “cramdown” in a Chapter 11 bankruptcy?

Related FAQs

Related Blog Posts