What Is a Cramdown?
A "cramdown" is one of the most powerful tools available to Chapter 13 debtors. It allows you to reduce a secured debt to the actual value of the collateral -- not what you owe on the loan. The legal basis is 11 U.S.C. Section 506(a), which provides that a claim is secured only to the extent of the value of the creditor's interest in the property. Any amount above that value becomes an unsecured claim.
In plain terms: if you owe $15,000 on a car that is now worth $8,000, a cramdown splits the debt into two parts. The $8,000 secured by the car is treated as a secured claim and paid through the plan at an appropriate interest rate. The remaining $7,000 becomes unsecured and is paid at whatever percentage your plan provides to unsecured creditors -- often pennies on the dollar.
The term "cramdown" is not used in the Bankruptcy Code itself. It is informal shorthand used by practitioners and courts to describe the bifurcation of an undersecured claim under Section 506(a) and the treatment of the secured portion under Section 1325(a)(5).
How Cramdown Works in Practice
To cramdown a secured debt in Chapter 13, your plan must propose to pay the secured creditor the replacement value of the collateral, plus interest, over the life of the plan. The plan must also provide that the creditor retains its lien on the property until the earlier of (a) payment of the allowed secured claim or (b) discharge. Here is the step-by-step process:
- Determine the collateral's value. For personal property like vehicles, the standard is "replacement value" -- what it would cost the debtor to obtain comparable property, considering the age and condition of the actual property. The Supreme Court established this standard in Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997). For cars, this is typically between private party value and retail value, often approximated using NADA or KBB guides.
- Bifurcate the claim. The total debt is split: the secured portion equals the collateral's value, and the remainder is treated as an unsecured claim.
- Set the interest rate. The secured claim must be paid with interest at a rate that gives the creditor the present value of its allowed secured claim. Most courts use the "formula" or "Till" approach.
- Pay through the plan. Monthly payments on the crammed-down secured claim are made through the Chapter 13 trustee as part of your regular plan payment.
- Retain the property. You keep the vehicle (or other collateral) throughout the plan and upon completion.
Example: Car Loan Cramdown
| Item | Without Cramdown | With Cramdown |
|---|---|---|
| Loan balance owed | $18,000 | $18,000 |
| Vehicle value (replacement) | $10,500 | $10,500 |
| Secured claim paid at interest | $18,000 | $10,500 |
| Unsecured deficiency | $0 | $7,500 |
| Interest rate on secured portion | Contract rate (e.g. 14%) | Till rate (e.g. 9%) |
| Unsecured deficiency paid at plan % | N/A | e.g. 10% = $750 |
| Total paid on this debt | ~$22,680 | ~$12,660 |
In this example, cramdown saves approximately $10,000 over the life of the plan. Actual savings depend on interest rates, plan length, and unsecured creditor percentage.
The 910-Day Rule (BAPCPA Hanging Paragraph)
There is one major exception to car loan cramdown. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) added what is commonly called the "hanging paragraph" -- an unnumbered paragraph at the end of Section 1325(a) that prevents cramdown of certain recent vehicle purchases.
The 910-day rule: If you purchased a motor vehicle for personal use and the purchase-money security interest was incurred within 910 days (approximately 2.5 years) before your bankruptcy filing date, you cannot cramdown the loan. You must pay the full balance through the plan.
Key details about the 910-day rule:
- Purchase-money only: The rule applies only to purchase-money security interests -- loans taken out to buy the vehicle. If you refinanced the car loan, some courts hold that the refinanced loan is no longer a purchase-money security interest, making cramdown available even within 910 days. This is a contested area of law that varies by circuit.
- Personal use only: The 910-day rule applies only to vehicles acquired for personal, family, or household purposes. Business vehicles are not subject to the rule and can be crammed down regardless of when they were purchased.
- Motor vehicles only: The rule specifically covers motor vehicles. Other personal property purchased within one year before filing is subject to a separate provision in the same hanging paragraph, but the 910-day timeline applies only to motor vehicles.
- Count carefully: The 910 days are counted backward from the petition date. If you purchased the car on January 1, 2024, and filed bankruptcy on August 1, 2026, that is 943 days -- cramdown is available. If you filed on April 1, 2026, that is only 821 days -- cramdown is blocked.
Strategic timing: If your car loan is underwater and you are considering Chapter 13, check whether waiting a few extra months to file would get you past the 910-day mark. The savings from cramdown can be substantial -- potentially thousands of dollars.
What Can (and Cannot) Be Crammed Down
Debts Eligible for Cramdown
- Car loans (outside 910 days): The most common cramdown target. Vehicles depreciate quickly, making many car loans significantly undersecured.
- Personal property loans: Loans secured by furniture, electronics, jewelry, or other personal property can be crammed down if the property's value is less than the loan balance. For non-vehicle personal property purchased within one year before filing, the hanging paragraph may apply.
- Investment property mortgages: Mortgages on rental property or investment real estate can be crammed down because the anti-modification clause of Section 1322(b)(2) applies only to the debtor's principal residence.
- Business equipment loans: Equipment used in a sole proprietorship or small business can be crammed down. The 910-day rule does not apply to business-use property.
- Second mortgages on principal residence (partial): While you cannot modify a first mortgage on your principal residence, a wholly unsecured junior lien can be "stripped off" entirely. This is technically lien stripping rather than cramdown, but it operates on similar principles. See lienstripping.org for details.
Debts NOT Eligible for Cramdown
- First mortgage on principal residence: Section 1322(b)(2) prohibits modification of rights of a creditor whose claim is secured only by a security interest in the debtor's principal residence. This is the single largest limitation on Chapter 13 cramdown power. You must pay the full mortgage balance at the contract rate.
- Car loans within 910 days: As discussed above, the hanging paragraph blocks cramdown of purchase-money vehicle loans incurred within 910 days before filing.
- Personal property loans within 1 year (non-vehicle): The hanging paragraph also blocks cramdown of purchase-money security interests in other personal property incurred within one year before filing.
Valuation: The Replacement Value Standard
Under Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997), the Supreme Court held that when a debtor proposes to retain collateral under a cramdown, the appropriate valuation standard is "replacement value" -- the price a willing buyer in the debtor's trade, business, or situation would pay a willing seller to obtain comparable property.
For vehicles, replacement value is generally understood to fall between private party sale value and full retail value. Most courts look to NADA (National Automobile Dealers Association) guides, Kelley Blue Book, or actual comparable sales. Some districts have established local conventions -- for example, using NADA clean retail minus a fixed percentage.
Valuation disputes are common. The creditor will argue for a higher value (reducing the benefit of cramdown), and the debtor will argue for a lower value. If the parties cannot agree, the court holds an evidentiary hearing on valuation. Having a professional appraisal or detailed comparable sales data strengthens your position.
Interest Rate: The Till Formula
In Till v. SCS Credit Corp., 541 U.S. 465 (2004), the Supreme Court addressed the question of what interest rate applies to crammed-down secured claims in Chapter 13. The plurality opinion adopted a "formula" approach:
Till rate = Prime rate + Risk adjustment (1% to 3%)
The prime rate is the national prime rate published by the Wall Street Journal. The risk adjustment accounts for factors such as the probability of default, the nature of the collateral, and the adequacy of protection. Most courts add 1% to 3%, with 1% to 2% being most common for vehicle loans.
The Till rate is almost always lower than the contract rate on the original loan, especially for subprime borrowers. A debtor who financed a car at 18% interest might see their cramdown rate reduced to 9-10% -- a significant savings on top of the principal reduction.
Not all circuits follow Till identically. Some courts in the Eighth Circuit and elsewhere have used a "coerced loan" or market-rate approach in certain circumstances. Check local practice in your district.
Cramdown Savings: Real-World Impact
The combination of principal reduction and interest rate reduction makes cramdown one of the most financially significant benefits of Chapter 13. Consider these scenarios:
Scenario Comparison
| Scenario | Loan Balance | Vehicle Value | Savings |
|---|---|---|---|
| Newer car, moderate depreciation | $22,000 | $17,000 | ~$5,800 |
| Older car, heavy depreciation | $12,000 | $5,000 | ~$7,400 |
| Subprime loan (high interest) | $15,000 | $9,000 | ~$8,200 |
| Two vehicles combined | $30,000 | $16,000 | ~$15,600 |
Savings estimates include both principal reduction and interest savings over a 60-month plan at Till rate vs. contract rate. Actual results vary.
For debtors with multiple underwater vehicles or high-interest subprime loans, cramdown can save $10,000 to $20,000 or more over the life of the plan. This is often the single biggest financial advantage of choosing Chapter 13 over Chapter 7 for debtors who need to keep their vehicles.
Frequently Asked Questions
Can I reduce my car loan in Chapter 13?
Yes -- if the vehicle was purchased more than 910 days before your bankruptcy filing date. Under Section 506(a), the secured claim is reduced to the replacement value of the vehicle. The remaining balance becomes unsecured debt, paid at whatever percentage your plan provides. If the vehicle was purchased within 910 days and the loan is a purchase-money security interest, cramdown is not available.
What is the 910-day rule?
The 910-day rule (from the BAPCPA "hanging paragraph" at the end of Section 1325(a)) prevents cramdown of purchase-money car loans incurred within 910 days (about 2 years and 6 months) before filing. It was enacted in 2005 to protect recent vehicle lenders from having their claims bifurcated. The rule applies only to personal-use vehicles financed with purchase-money loans.
Can I cramdown my mortgage?
You cannot cramdown a mortgage on your principal residence. Section 1322(b)(2) specifically prohibits modification of a claim secured only by the debtor's primary home. However, you can cramdown mortgages on investment or rental properties. You may also be able to strip off a wholly unsecured junior lien on your primary residence -- see lienstripping.org.
What interest rate applies to a crammed-down loan?
Most courts apply the Till rate: the national prime rate plus a risk adjustment of 1% to 3%. In early 2026, with the prime rate at 7.5%, typical cramdown rates range from 8.5% to 10.5%. While this is not cheap, it is almost always lower than the original contract rate, particularly for subprime loans. The reduced principal combined with the reduced interest rate generates the savings.
Related Resources
- lienstripping.org -- Strip off underwater junior liens on your home
- Secured Debts in Chapter 13 -- How mortgages, car loans, and other liens are treated
- meanstest.org -- Determine your median income status for plan length
- section1328.org -- Chapter 13 discharge rules
Last updated: March 2026