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

In West Virginia, a “cramdown” is a type of debt restructuring that occurs under Chapter 11 Bankruptcy Law. It applies to secured loans, such as mortgages and car loans, that are not fully paid off. The cramdown process reduces the amount of money owed to the lender to the current value of the asset. The remaining balance of the debt is then reclassified as unsecured debt, which is typically paid at a much lower interest rate. For example, consider the case of a house that is bought for $200,000 with a $180,000 loan. After a few years, the house is worth only $150,000. If the borrower declares bankruptcy, the cramdown process may reduce the loan amount to $150,000, the current value of the house. The remaining $30,000 is reclassified as unsecured debt and paid off at a lower interest rate. Cramdown procedures can help a debtor avoid foreclosure and protect assets during bankruptcy. However, the process is usually only available in Chapter 11 bankruptcies, which are available to businesses or large debtors. Furthermore, creditors can challenge a cramdown if they feel the debtor does not have good cause for a reduced payment. Ultimately, a cramdown can provide much-needed relief for a debtor and help them get back on their feet financially.

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

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