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

A cramdown in a Chapter 11 bankruptcy is a way for a debtor to reduce their overall debt. This is achieved by redirecting payments from some of their creditors to their higher priority creditors. It is different from a Chapter 7 bankruptcy because, rather than liquidating a debtor’s assets to pay creditors, a cramdown allows the debtor to retain most of their assets while still reducing their overall debt. In North Carolina, a cramdown is only allowed in certain circumstances. For instance, if the debtor can prove to the court that they are unable to pay all their creditors in full, the court can authorize a cramdown in order to keep the debtor from having to liquidate their assets to pay off the debt. The cramdown process will involve the debtor’s creditors agreeing to accept a portion of the debt. The payment will be spread proportionately among all creditors, and any remaining debt will be written off. In some cases, the debtor may also be able to reduce their interest rate or the length of the loan. It is important for a debtor in North Carolina to know that a cramdown is not always an option, as the court must grant permission for a cramdown to be allowed.

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

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