This recession has brought to the surface a lot of discussion about "cram-downs," but most Americans have no idea what that is. Well, when applied to your vehicle, a cram-down is basically when you reduce the car loan to the value of the car. For example, if you have a $35,000 loan on a car worth only $30,000, your bankruptcy trustee may allow a cram-down. If so, $5,000 of that loan would become unsecured and could be discharged in bankruptcy. But should a debtor "cram-down" their car note in bankruptcy or should they walk away?
Ask yourself these questions:
- Can you really, in the long-term afford this car loan? Will you be willing and capable of repaying the loan long after your bankruptcy is discharged? If not, don't bother fighting for a cram-down, hand the lender the car keys instead.
- Is the car really worth it? Really, is the car important to you for transportation? Are your kids and spouse dependent on the vehicle to get to work or school? Or, do you have access to public transportation that's reliable? If the vehicle is not an absolute necessity, then you may not want to go through the trouble of cramming down the loan in bankruptcy.
- Can you afford to buy another car for cash? Many times debtors file bankruptcy with vehicles that are overpriced and on the higher-end. These debtors might be better off buying a good used vehicle once they exit bankruptcy and surrendering the expensive car which might sink them financially.