Understanding Chapter 13 Bankruptcy Cramdown | Video Explanation

Do you need to catch up on your car loan and want to keep your vehicle? Chapter 13 bankruptcy could be an option for you. Chapter 13 could help you catch up on your missed payments to prevent your car from being repossessed. It can even help you pay off your auto loan faster. In this video, I explain the Chapter 13 cramdown in this YouTube video.

Chapter 13 Bankruptcy

Chapter 13 is used under several circumstances. One common scenario is if the debtor fails the means test. Nonexempt assets can also be kept by paying back the unprotected equity. While that is possible with a Chapter 7 bankruptcy, the payment plan won’t exceed twelve months, but with Chapter 13, the payment plan is extended to three to five years.

Understanding the Chapter 13 Bankruptcy Cramdown

A unique feature of Chapter 13 is the “cramdown.” This reduces your car loan balance to the value of the car. Since car values depreciate quickly, this could save you thousands of dollars. The cramdown is not an option with Chapter 7 bankruptcy.

For example, say your car loan is $20,000, but the car is only worth $12,000. Through a cramdown, your loan balance could be reduced to $12,000, saving you $8,000! The $8,000 becomes unsecured debt. Unsecured creditors generally receive much less than what is owed through the bankruptcy plan. So, usually, only a fraction of what you owe gets paid back to unsecured creditors like credit cards, personal loans, medical bills, and car loans that were crammed down.

Getting a Cramdown Approved

In this YouTube video, you’ll see how the cramdown isn’t automatic. A motion has to be filed with the court, and the car loan lender can object. However, it’s common for car loan lenders to reach an agreement since they lose far more financially if they have to take the vehicle back.

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Updated April 10, 2025.