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Interest Cramdown

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  • Interest Cramdown

    I purchased a new 2017 Civic and have made two payments. The interest rate is 19%. The lawyer stated we can do an interest cram down which will put the interest at 5.75% or so. Does this have to be approved by the lender or is it something that is automatic?

  • #2
    Hi - it's automatic. We were in the exact same situation when we filed and it just happened.
    Filed Chapter 13 - 07/20/12
    Discharged 8/2/16

    Comment


    • #3
      Well, it's not so much automatic. The lender can complain and force you to negotiate higher. But let's back up first.

      Let's talk about cram downs. In a Chapter 13, you can only cramdown a vehicle which has been purchased at least 910 days prior to filing. A vehicle purchased within 2.5 years would not be crammed down.

      Let's talk about Till Rate and interest rate changes. In a Chapter 13, you typically pay secured creditors, other than your lender on your primary residence because of a special rule, the Till Rate rather than your normal interest rate. This allows you to modify the interest rate on high interest vehicle loans to the Till Rate. The Till Rate is based on the prime lending rate plus a "risk" factor of 1-3%. Most courts set the risk factor at 2% so Till is probably around 6% right now.

      Now, whether the lender would complain if you tried to change the interest rate from 19% to 6% is too fact and lender specific. Either the lender will complain that you're messing with the rate when you just bought the car on the eve of bankruptcy, or they'll let you do it. Your attorney may need to negotiate with them on the rate, offering something between 6% and 19%. My lender complained (Ally).

      Most of the time, though, the lender doesn't complain at all.

      Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
      Status: (Auto) Discharged and Closed! 5/10
      Visit My BKForum Blog: justbroke's Blog


      I am not an attorney. Any advice provided is not legal advice.

      Comment


      • #4
        Originally posted by justbroke View Post
        Well, it's not so much automatic. The lender can complain and force you to negotiate higher. But let's back up first.

        Let's talk about cram downs. In a Chapter 13, you can only cramdown a vehicle which has been purchased at least 910 days prior to filing. A vehicle purchased within 2.5 years would not be crammed down.

        Let's talk about Till Rate and interest rate changes. In a Chapter 13, you typically pay secured creditors, other than your lender on your primary residence because of a special rule, the Till Rate rather than your normal interest rate. This allows you to modify the interest rate on high interest vehicle loans to the Till Rate. The Till Rate is based on the prime lending rate plus a "risk" factor of 1-3%. Most courts set the risk factor at 2% so Till is probably around 6% right now.

        Now, whether the lender would complain if you tried to change the interest rate from 19% to 6% is too fact and lender specific. Either the lender will complain that you're messing with the rate when you just bought the car on the eve of bankruptcy, or they'll let you do it. Your attorney may need to negotiate with them on the rate, offering something between 6% and 19%. My lender complained (Ally).

        Most of the time, though, the lender doesn't complain at all.
        Thanks for clearing that up between the cram down and Till Rate and interest rate changes. So many rules and terms to understand.

        Comment


        • #5
          Originally posted by knappyhead View Post
          Thanks for clearing that up between the cram down and Till Rate and interest rate changes. So many rules and terms to understand.
          Exactly. I'm just trying to help avoid confusion. Now, that does not mean that attorneys and people don't sometime say "cramdown" when reducing the interest rate to the Till Rate.

          It's a lot to learn.

          Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
          Status: (Auto) Discharged and Closed! 5/10
          Visit My BKForum Blog: justbroke's Blog


          I am not an attorney. Any advice provided is not legal advice.

          Comment


          • #6
            justbroke Hi and thanks for the explanation. Definately better than my "automatic" response. We were never told it was going to happen, it just did .
            Filed Chapter 13 - 07/20/12
            Discharged 8/2/16

            Comment


            • #7
              Originally posted by sophieanne View Post
              justbroke Hi and thanks for the explanation. Definately better than my "automatic" response. We were never told it was going to happen, it just did .
              To tell you the truth, this is how it should appear to the debtor that is represented by an attorney. You pay the attorney to worry and to get you the best deal possible. A (represented) debtor should not need to know what FRBP means, what the Federal Rules of Evidence are, what's cramdown, what is a "910" vehicle, what is Till, what is Lanning and what it did to my Chapter 13 Means Test, or 11 USC 1323 and the effect on a residence.

              So, to the represented debtor, it should appear to be automatic.
              Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
              Status: (Auto) Discharged and Closed! 5/10
              Visit My BKForum Blog: justbroke's Blog


              I am not an attorney. Any advice provided is not legal advice.

              Comment


              • #8
                I have a 2010 Honda Civic that i still owe like 10k with interest rate of 19% (I know I know wow). when I filled on 5/30 with 341 meeting scheduled for 6/27 my lender is challenging. The. the car is worth around 2k got a professional appraiser, the lender wants 7k and keep the 19% interest, waiting to see what happens. I am also wondering if they show up at the 341 meeting

                Comment


                • #9
                  During the ch 13 can't a person surrender the car regardless if it was purchased 4 years ago or 4 months ago?

                  Comment


                  • #10
                    Originally posted by hcorreia1 View Post
                    I have a 2010 Honda Civic that i still owe like 10k with interest rate of 19% (I know I know wow). when I filled on 5/30 with 341 meeting scheduled for 6/27 my lender is challenging. The. the car is worth around 2k got a professional appraiser, the lender wants 7k and keep the 19% interest, waiting to see what happens. I am also wondering if they show up at the 341 meeting
                    If this is not a 910-vehicle then I would not worry at all. I had a lender complaining about my car and changing the interest rate. Their attorney was likely just "earning" their fees because I kept telling them (and even in my response to the opposition to confirmation) was that it was a refinance and they do not get the "purchase money" protection combined with the fact that the loan was over 1,000 days old.

                    Sometimes they object just to object.

                    It all works out in the end.

                    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                    Status: (Auto) Discharged and Closed! 5/10
                    Visit My BKForum Blog: justbroke's Blog


                    I am not an attorney. Any advice provided is not legal advice.

                    Comment


                    • #11
                      Thank you for your response

                      Comment

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