What Is a Cram Down in Bankruptcy? Eligible Debts and Requirements

A cram down in bankruptcy is a court order that forces a secured creditor to accept modified loan terms, reducing the secured portion of the debt to match the collateral’s current market value and treating whatever is left as unsecured debt. It is available in Chapter 11, Chapter 12, and Chapter 13 cases, and it is one of the strongest debt-reduction tools in a reorganization.

How the Debt Gets Split

The mechanic is simple. If you owe more on a secured loan than the collateral is worth, the court divides the debt into two pieces. The secured piece is reduced to the collateral’s current value. The rest becomes an unsecured claim that gets paid alongside your other general unsecured debts, often at pennies on the dollar. Federal bankruptcy law backs this up: a creditor’s secured claim only extends to the value of the collateral, and anything above that is unsecured.¹

Say you owe $20,000 on a car loan and the car is worth $12,000. A cram down cuts the secured debt to $12,000, which you repay with interest through your plan. The remaining $8,000 becomes unsecured. Depending on what your plan provides, that unsecured piece may be repaid at a fraction of the original amount or not at all. The court also sets new repayment terms on the secured portion, which typically means a lower principal and often a different interest rate than the original contract. Lower balance plus a court-set rate usually adds up to a substantially lower monthly payment.

How the Court Values the Collateral

Whatever number the court lands on becomes your new secured debt, so valuation drives everything. For personal property like vehicles and household goods, the standard is replacement value: what a buyer in your situation would pay for comparable property in its current age and condition.¹ Congress wrote this standard into the code in 2005, and the Supreme Court had reached the same result earlier in Associates Commercial Corp. v. Rash, rejecting the lower foreclosure-value approach some courts had used.

Replacement value is not full retail. It leaves out the costs a retail seller builds into the sticker price but that you don’t actually receive when you keep the property, like dealer warranties, reconditioning, and inventory storage.

For real property, courts use fair market value and usually rely on a professional appraisal. An appraisal for a single-family home generally runs a few hundred dollars, and complex or multi-unit properties cost more. That fee is out of pocket and sits on top of your attorney’s fees, so build it into your budget before filing.

What Interest Rate Applies

Cutting the principal is only half the picture. The court also assigns an interest rate to the crammed-down secured debt. In Till v. SCS Credit Corp., the Supreme Court held that courts should start with the national prime rate and add 1% to 3% to account for the risk that the debtor might not complete the plan. Practitioners call this the Till rate or the formula rate.

As of early 2026, the national prime rate is 6.75%.² With a typical risk adjustment of 1.5% to 2%, most cramdown rates in 2026 cases land around 8% to 9%. That is usually well below the original contract rate on a subprime auto loan or a high-rate equipment loan, and that spread is a big part of the savings. Some districts publish standing orders setting a presumptive Till rate, so the exact figure depends on where you file. Creditors sometimes push for a higher market rate, but the Till plurality rejected the market-rate approach in Chapter 13, and the prime-plus formula dominates across all chapters.

Which Debts Can Be Crammed Down

Cram downs work on secured debts where the collateral is worth less than the loan balance. Common targets:

Vehicle loans on cars and trucks purchased more than 910 days before filing.
Mortgages on investment property, including rentals and vacation homes.
Business equipment, inventory, machinery, tools, and computers.
Household goods and furniture, when the debt was incurred more than one year before filing.³

Chapter 12, which covers family farmers and fishermen, extends further. It allows cram downs on farm equipment, agricultural land, and even the family home, because Chapter 12 does not carry the anti-modification bar that Chapter 13 imposes on primary residence mortgages.⁴

What Cannot Be Crammed Down

Your Primary Residence Mortgage in Chapter 13

A Chapter 13 plan cannot modify a mortgage secured only by the debtor’s principal residence.⁵ You can cure missed payments through the plan and stretch the arrears over three to five years, but the principal balance, interest rate, and monthly payment on the mortgage itself stay put. This is one of the biggest limits in consumer bankruptcy.

A completely underwater junior lien is a different story. If the first mortgage already exceeds the home’s value, a second mortgage or home equity loan has no collateral supporting it, and many courts allow the debtor to strip that lien off entirely, reclassifying it as unsecured. Technically that is a lien strip rather than a cram down, but the effect is similar: the second mortgage goes away when you complete the plan.

Recent Purchase-Money Loans

The 2005 bankruptcy reform added timing protections for certain purchase-money lenders. Under what practitioners call the “hanging paragraph” of the confirmation statute, you cannot cram down a vehicle loan if you bought the car for personal use within 910 days of filing.³ That is roughly two and a half years. For other personal property, the cutoff is one year. Buy furniture on credit eleven months before you file and you cannot cram down that debt either.

These timing rules only apply when the creditor holds a purchase-money security interest, meaning the loan actually financed the collateral. A title loan on a car you already owned, or a loan secured by property you did not buy with the loan proceeds, sits outside these rules and can generally be crammed down regardless of timing.

What the Court Requires for Approval

A cram down is not automatic. The reorganization plan has to satisfy several tests, and missing any one of them can sink the whole plan.

Present Value of the Secured Claim

The plan must give the secured creditor payments whose present value, as of the plan’s effective date, equals at least the allowed secured claim. The creditor has to end up with the economic equivalent of the collateral’s value, accounting for the time value of money.⁶ That is why the court assigns an interest rate rather than letting you repay the reduced principal at zero. The creditor also keeps its lien on the collateral until the debt is paid or you receive a discharge.

Best Interests of Creditors

Every creditor who votes against the plan must receive at least what they would get in a hypothetical Chapter 7 liquidation.⁷ In most consumer cases this is easy to meet, because unsecured creditors would get little or nothing from a liquidation anyway. In cases with significant nonexempt assets, plan payments have to at least match what a Chapter 7 trustee would distribute.

Feasibility

You have to convince the court you can actually make every payment the plan requires. Chapter 13 asks whether the debtor “will be able to make all payments under the plan.”³ Chapter 11 asks whether confirmation is likely to be followed by liquidation or further reorganization.⁶ Courts look at income, expenses, and the overall budget. A lot of cramdown proposals fall apart here, because the numbers on paper work but the court sees no cushion for emergencies or income swings.

What Happens If Your Plan Fails

The cram down only sticks if you complete the plan. If your Chapter 13 case gets dismissed before you finish payments, the law effectively rewinds the clock. Liens that were modified during the case are reinstated, and property of the estate revests in whoever held it before the bankruptcy started.⁸ The creditor’s original lien comes back at its original amount, less whatever you paid in. You do not get a refund of plan payments already made.

The risk is real. Chapter 13 plans run three to five years, and job loss, medical bills, or divorce can knock the best-laid budget off track. If you crammed down a $20,000 car loan to $12,000 and your case is dismissed after $6,000 in payments, the creditor can pursue the balance on the original $20,000 debt, minus those payments. The savings evaporate. Some courts allow conversion to Chapter 7 rather than outright dismissal, which may preserve some benefits, but the cramdown modifications themselves do not survive dismissal.

1
Office of the Law Revision Counsel. 11 U.S. Code 506 – Determination of Secured Status
2
Federal Reserve Bank of St. Louis. Bank Prime Loan Rate (DPRIME)
3
Office of the Law Revision Counsel. 11 U.S.C. 1325 – Confirmation of Plan
4
Office of the Law Revision Counsel. 11 U.S. Code 1225 – Confirmation of Plan
5
Office of the Law Revision Counsel. 11 U.S.C. 1322 – Contents of Plan
6
Office of the Law Revision Counsel. 11 U.S.C. 1129 – Confirmation of Plan
7
Office of the Law Revision Counsel. 11 U.S.C. Chapter 11 – Reorganization
8
Office of the Law Revision Counsel. 11 U.S.C. 349 – Effect of Dismissal