Chapter 13 bankruptcy has many benefits for debtors. One of the greatest advantages is the ability to cram down automobile claims. Cramming down a claim means two things. First it means that the debtor can reduce the interest rate paid on an automobile claim provided for in the Chapter 13 plan. In the Northern and Eastern District of Texas, the interest rate can usually be dropped to the prime rate plus one to three percent. Recently five percent interest is considered a fair interest rate for these types of claims. However, if the claim was incurred recently it is likely the creditor will object to being provided for in the Chapter 13 plan or having the interest rate reduced below the contract rate. For newly financed claims the debtor may be forced to pay the claim outside of the Chapter 13 plan.
Cramming down a claim also means to reduce the amount of the claim that has to be paid to the value of the collateral. This means that if the claim amount is $10,000 but the value of the property is $5,000, the debtor can satisfy the creditor’s claim by paying $5,000 in the plan. Debtors can cram down claims in this way if they were financed more than 910 days ago. If the claim was financed sooner than 910 days then the debtor must pay the entire claim amount under the contract less payments made prior to filing bankruptcy but can still reduce the interest rate. Cramming down a vehicle can save a debtor thousands of dollars, and force the creditor to turn over title to the vehicle much sooner than if the claim was paid according to the original contract.