Glossary

Cramdown

Written by JaredLast reviewed 2026-08-25

What does "cramdown" mean in Chapter 13 bankruptcy?

Cramdown is the shorthand practitioners use for bifurcating a secured claim under 11 U.S.C. § 506(a): the Chapter 13 plan pays the creditor only the collateral's value as a secured claim, and whatever balance remains above that value is reclassified as an unsecured claim — the kind a plan often pays only a fraction of. The word appears nowhere in the Bankruptcy Code; it comes from the sense that the plan "crams" a reduced payment on the creditor over its objection, since a creditor's vote isn't required once the plan meets the Code's own tests for how a secured claim must be treated.

Those tests live in 11 U.S.C. § 1325(a)(5), the plan-confirmation paragraph governing secured claims. A plan can satisfy it three ways: the creditor accepts the plan, the debtor surrenders the collateral, or — the cramdown path — the plan gives the creditor a package meeting § 1325(a)(5)(B). That subparagraph requires the lienholder to retain its lien until the earlier of "the payment of the underlying debt determined under nonbankruptcy law" or "discharge under section 1328"; requires "the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim" to be "not less than the allowed amount of such claim"; and imposes two separate payment rules — under § 1325(a)(5)(B)(iii)(I) any periodic payments "shall be in equal monthly amounts," and under (iii)(II), where the claim is secured by personal property, those payments must be "not less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan." In plain terms: the creditor doesn't get to block the plan just by objecting, but it does get the collateral's present value, paid on a fixed schedule, not a promise.

How does § 506(a) split a secured claim into two pieces?

Section 506(a)(1) does the splitting: an allowed claim secured by a lien "is a secured claim to the extent of the value of such creditor's interest" in the property, and "is an unsecured claim to the extent that the value of such creditor's interest... is less than the amount of such allowed claim." A $20,000 loan balance against a car worth $12,000 becomes a $12,000 secured claim and an $8,000 unsecured claim under that language — assuming nothing blocks the split in the first place, which is the subject of the next section.

The value itself isn't left to negotiation. For an individual debtor in a Chapter 7 or Chapter 13 case, § 506(a)(2) fixes it: personal property is valued at "replacement value... as of the date of the filing of the petition without deduction for costs of sale or marketing," and for property "acquired for personal, family, or household purposes," replacement value means "the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined." That's a specific, retail-anchored standard — not wholesale, not what the debtor could get in a private sale, and not reduced by what it would cost to sell the car.

What blocks cramdown on most car loans?

The hanging paragraph at the end of § 1325(a) does — by making § 506 not apply to the claim at all, so there's nothing left to bifurcate. Added by BAPCPA in 2005, the paragraph reads: "For purposes of paragraph (5), section 506 shall not apply to a claim... if the creditor has a purchase money security interest securing the debt..., the debt was incurred within the 910-day period preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle... acquired for the personal use of the debtor." When all three conditions hold — purchase-money lien, 910-day timing, personal-use vehicle — the full claim has to be paid as secured, at whatever the loan's remaining balance is, regardless of how far the car's value has fallen below it. The full mechanics of that test, including the circuit split over rolled-in negative equity, are covered on the 910-day rule page.

When can a car loan still be crammed down?

When the loan misses the 910-day timing condition or the purchase-money condition, because all three of the hanging paragraph's conditions have to be true at once to block § 506; missing the third condition, personal use, produces a murkier answer covered below. A loan originated more than 910 days before the petition is filed misses the timing condition and is open to cramdown even though it's still a car loan. Debt that isn't purchase-money — for example, a title loan taken out against a car the debtor already owned, rather than debt used to buy the car — misses that condition regardless of how recent it is. A vehicle acquired mainly for business use, rather than personal use, misses the personal-use condition — but what follows from that is genuinely unsettled, and the two answers lead to different results. The hanging paragraph has a second clause covering collateral that "consists of any other thing of value," which applies a 1-year window instead of 910 days. The majority of courts to address the question read a business-use vehicle into that clause, so the claim is still protected from bifurcation if the debt was incurred within a year of filing; a minority read the paragraph's specific motor-vehicle language as governing all motor vehicles, so a business-use car falls outside the hanging paragraph entirely and can be crammed down at any age. Judicial-education materials circulated by the bankruptcy courts describe both positions as live, and no Supreme Court or clear circuit consensus resolves it.

So the first two gaps reopen § 506(a) outright: the claim gets bifurcated at the vehicle's replacement value the same way any other secured claim would be. The business-use gap reopens it only under the minority reading, or — under the majority reading — only if the debt is also more than a year old.

What interest rate applies to a crammed-down car loan?

Not the rate on the original loan contract. In Till v. SCS Credit Corp., 541 U.S. 465 (2004), a four-justice plurality of the Supreme Court — Justice Thomas concurred separately in the outcome on different reasoning, so the formula approach itself commanded four votes rather than a majority — concluded that the interest rate on a crammed-down secured claim should be set using a "formula approach": start with the national prime rate and adjust it upward for the risk that a Chapter 13 debtor won't complete the plan. The plurality opinion noted that "other courts have generally approved adjustments of 1% to 3%" above prime, but it set no national figure and said flatly: "We do not decide the proper scale for the risk adjustment, as the issue is not before us." The size of the adjustment is left to the bankruptcy court hearing the case. That formula rate, not whatever APR the original financing carried, is what the plan has to pay on the secured piece of a crammed-down claim.

This page explains how cramdown works generically and what stops it from working on a typical car loan; it isn't legal advice about whether a specific loan qualifies. Whether a particular vehicle purchase clears all three hanging-paragraph conditions — or fails one and reopens § 506 — is a factual question for the loan documents and the case docket, best confirmed with the attorney handling the filing. For financing decisions while a Chapter 13 case is already open, see can you buy a car while your Chapter 13 case is open; for the Chapter 7 side, where cramdown doesn't apply at all, see redemption and the Chapter 7 car loan pillar page.