How Does a Cramdown Work in Bankruptcy?

 Posted on January 13, 2026 in Bankruptcy and Car Equity

If you owe more on your car than it is worth, bankruptcy may offer a solution called a cramdown. A cramdown allows you to reduce what you owe on certain loans to match the actual value of the property. This powerful tool can save you thousands of dollars and make your monthly payments much more affordable.

Understanding how cramdowns work can help you decide whether Chapter 13 bankruptcy is right for you in 2026. Our Montgomery County consumer bankruptcy attorney has more than 20 years of experience helping people reduce their debt and get a fresh start. Call us today. 

What Is a Cramdown in Bankruptcy?

A cramdown is a legal process available in Chapter 13 bankruptcy that lets you reduce the principal balance on certain secured debts. A secured debt is a loan where the lender has a lien on specific property, like a car loan or furniture financing. If you stop paying, the lender can repossess that property.

When you owe more on a loan than the property is worth, you are upside down on that loan. For example, you might owe $15,000 on a car that is only worth $9,000. Under normal circumstances, you would need to pay the full $15,000 even though the car is worth much less.

A cramdown changes this equation. Under 11 U.S.C. Section 506, bankruptcy law allows you to split your secured debt into two parts. The secured portion equals the current market value of the property. The unsecured portion is everything you owe above that value. 

You must pay the secured portion in full through your Chapter 13 repayment plan, but the unsecured portion gets treated like credit card debt and often gets discharged for pennies on the dollar or nothing at all.

Using the example above, your $15,000 car loan would be crammed down to $9,000, which is the car's actual value. You would pay the $9,000 through your Chapter 13 plan, and the remaining $6,000 would be treated as unsecured debt.

What Types of Debts Can You Cram Down?

Not every secured debt qualifies for a cramdown. Bankruptcy law sets specific rules about which loans you can reduce.

Car Loans

Car loans are the most common type of debt people cram down. However, your car loan must meet the 910-day rule. This rule says you can only cram down a car loan if you purchased the vehicle more than 910 days before filing bankruptcy. That works out to about two and a half years. If you bought your car more recently, you cannot cram down the loan.

Other Vehicle Loans

Loans for other vehicles like motorcycles, RVs, boats, and trailers can also be crammed down.

Investment Property and Rental Property

If you own investment real estate or rental property, you may be able to cram down mortgages or other loans secured by those properties. This does not apply to your primary residence, which has different rules we will discuss below.

Other Secured Personal Property

Furniture, appliances, electronics, and other personal property purchased on credit may qualify for cramdowns if you bought them more than one year before filing bankruptcy. This is called the one-year rule for personal property other than vehicles.

What Debts Cannot Be Crammed Down?

Certain important debts do not qualify for cramdowns under bankruptcy law.

Your Primary Residence Mortgage

You cannot cram down the mortgage on your primary home in Chapter 13 bankruptcy. Congress specifically excluded primary residence mortgages from cramdown eligibility. If you owe more on your house than it is worth, you must still pay the full mortgage balance to keep your home.

Recent Car Purchases

As mentioned above, if you purchased your car within 910 days before filing bankruptcy, you cannot cram down that loan. You must pay the full amount you owe to keep the vehicle.

Recent Personal Property Purchases

Personal property loans less than one year old cannot be crammed down. You must wait until the one-year anniversary of the purchase date.

What Are the Requirements for a Cramdown?

To successfully cram down a loan in Chapter 13 bankruptcy, you must meet several requirements.

• You must qualify for Chapter 13 bankruptcy, which requires having regular income and debt levels below certain limits. 

• You must be able to afford your Chapter 13 plan payments, which will include the cramdown secured portion of the debt. 

• You need a proper valuation of the property to prove what it is worth. 

The bankruptcy court must approve your Chapter 13 plan, including any cramdowns. Creditors may object to your proposed values, so having documentation to support your valuations is important.

Call a Montgomery County, MD Consumer Bankruptcy Lawyer Today

A cramdown can significantly reduce your debt and make your Chapter 13 repayment plan more manageable. Our Takoma Park consumer bankruptcy attorney at The Law Office of Donald L. Bell has more than 20 years of experience helping Maryland families use bankruptcy tools like cramdowns to get relief from overwhelming debt. 

We offer free consultations for consumer bankruptcy cases and handle Chapter 7 cases for a flat fee. Call The Law Office of Donald L. Bell at 301-614-0535 today to learn whether a cramdown could help you save money and rebuild your financial future.