What is a “cramdown” in a Chapter 11 bankruptcy?

A "cramdown" in a Chapter 11 bankruptcy is a process in which a judge reduces the amount of debt that a debtor must repay to a creditor. It occurs when a debtor has more debt than assets, and the debtor and creditors cannot reach an agreement about the amount of debt the debtor must repay. In a cramdown situation, the judge will decide what portion of the debt the debtor must still repay, even though the debtor does not have enough assets to cover the entire amount. Cramdowns are a way for a judge to ensure that the debtor is not paying more money back to creditors than they are able to, while also ensuring that creditors receive at least some repayment of the debt. The amount of debt that the judge reduces (or “crams down”) is typically reduced to the amount that the debtor’s assets are worth. In California, the state court can decide on a cramdown if the creditor consents to it or if the debtor requests a hearing to determine if a cramdown is appropriate. A cramdown can be more complicated if multiple creditors are involved. In this situation, a judge might choose to divide the cramdown amount among the creditors. In a Chapter 11 bankruptcy, a cramdown can provide a fresh start for a debtor and help them get out of debt in a reasonable timeframe. It can also help creditors get some repayment for their loans, even if not the full amount.

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What is a “cramdown” in a Chapter 11 bankruptcy?

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