Cram-downs and the Hanging Paragraph
Posted on 17. Nov, 2009 by emmettjones in Bankruptcy
One of the largest advantages of a Chapter 13 bankruptcy is that you are able to “cram-down” the value of your car in bankruptcy, assuming you meet the correct criteria. The criteria itself? It’s found in the “hanging paragraph” of the bankruptcy code. Section 1325(a)(*) of the bankruptcy code is dubbed as the hanging paragraph in large part because Congress delegated the re-writing of the bankruptcy code to the credit card industry, before jumping in to write one section…and failing to name it, or proof read it, depending on the attorney you ask. It provides the following,
For the purpose of paragraph [1325(a)](5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day [period] preceding the date of the filing of the petition, and the collateral for the debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if collateral for the debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.
Congress has a way with words, don’t they?
For purposes of this discussion all you need to know is a debtor’s ability to “cram-down” a motor vehicle (instead of paying the entire amount owed on a loan, the debtor would pay the fair market value of the motor vehicle at the time of bankruptcy filing) is constrained by the need to have owned the motor vehicle for at least 910 days prior to the bankruptcy filing, and that the vehicle was purchased for the personal usage of the debtor.
Of course, this brings a myriad of other questions into focus…
Can I prove the vehicle was purchased for non-personal (business) usage?
Can I prove the vehicle was purchased for a spouse’s usage? Or one of my children?
Might a cram down situation make a Chapter 13 more appealing than a Chapter 7?
These and other questions vary from person to person. Every situation is different! I would suggest speaking with a bankruptcy attorney to help you through the ins and outs of bankruptcy law to ensure your bests interests are kept in mind.
