What Is A “Cram Down” When You Re-Affirm A Debt?

Well, it is over.  You filed bankruptcy, and met with the trustee, and your bankruptcy case is over.  You now either have a schedule of payments with a Chapter 13, or you wiped most of your debt clean with a Chapter 7.

But there may be a few assets that you decided to keep that you have to re-affirm.  When you re-affirm the debt, you are promising to pay the debt off according to a new payment amount and schedule.  It may be the same as it was, but it may not.

When I re-affirmed my truck, my credit union offered to let me do a ‘cram down’.  I was upside down on my truck, meaning I owed more than it was worth.  The difference was about $4,500.00.  My credit union knew that I was unlikely to want to keep the truck, since it was no longer worth what I owed.

If the credit union had taken the truck back, not only would they have lost the extra money I owed on it, but they also would have lost the money paid to the auction house that sold it, and whatever the lower amount was that it sold for.  My banker told me they were looking at losing about $8700.00 on the truck when all was said and done.

So, they opted for a different route.  By bringing my truck loan down to the current market value, I saved money, they saved money, and they would make a bit back on the interest that I paid.

For me, this was a great deal.  I got to keep the truck, and my payment was reduced.  For my credit union, It was a decent end to a bad situation.

If you are re-affirming a debt, and the debt has a well-define market value, be sure you talk to your lender if you owe more than what your property is worth.  It may be easier to keep your debt than to try to get a replacement for your property.

Make sure you take a hard look before you do this though.  My truck had some problems that I still had to get fixed, and it ended up that I could have gotten a loan for a different car.  It wouldn’t have been as nice, but there would have been no cash out of pocket for the new vehicle, while I had to pay for repairs to my truck.