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

A “cramdown” in a Chapter 11 bankruptcy is a way for a debtor to reduce the amount of money owed on a secured debt. It allows the debtor to modify the terms of the loan, such as reducing the amount of money owed, and can only occur when the value of the collateral (such as a car or property) that secures the loan is less than the amount of the loan. In Chapter 11 bankruptcy, the debtor usually proposes a “plan of reorganization” to the court. This plan must show how the debt will be paid off, as well as outlining how any secured debt will be restructured. In order for the plan to receive approval from the court, the debtor must show that their creditors will receive, at minimum, the same amount that they would have received if the debtor had gone into Chapter 7 bankruptcy. Cramdown can potentially be used to reduce the amount of money owed on a secured loan or other debt. Florida bankruptcy law allows for the cramdown in Chapter 11 bankruptcies if the value of the collateral is less than the amount of the loan. The court may approve the plan of reorganization if the creditor receives the value of the collateral (or up to the amount of the loan, if the collateral is worth more than the loan) instead of the full amount of the loan. The cramdown in Florida is an incredibly useful tool for those looking to reduce the amount of money owed on a secured debt. However, it must be done through a Chapter 11 reorganization plan, and is not available in Chapter 7 bankruptcy cases.

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

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