How Do Cramdowns Work in Bankruptcy?

 Posted on February 04, 2026 in Chapter 13 Bankruptcy

One of the things people worry about the most when they file for bankruptcy is what will happen to their stuff. It’s easy to dismiss physical belongings as not being overly important, but the truth is that your house, your car, and your other belongings are largely what your life is made up of. Where would you live without your house? What happens if you don’t have a car? 

We get these questions all the time. Our Harris County bankruptcy attorney can help you find ways to keep your property when you file for bankruptcy, including your car, if you file for bankruptcy in 2026. 

So let’s take a look at one very common issue in bankruptcy: When you owe more on your car or other property than it is actually worth. A cramdown might be the solution that helps you keep your vehicle, while reducing what you owe to a more manageable amount.

What Is a Cramdown in Bankruptcy?

A cramdown is a bankruptcy tool available in Chapter 13 cases that allows you to reduce certain secured debts to the current value of the collateral. This process is authorized under 11 U.S.C. Section 506.

How Cramdowns Work

Here is how it works. If you owe $15,000 on a car that is only worth $9,000, you are "underwater" on the loan. Through a cramdown, the bankruptcy court can split the debt into two parts. The secured portion becomes $9,000, which is what the car is actually worth. The remaining $6,000 becomes unsecured debt, which is treated the same as credit card debt or medical bills in your bankruptcy plan.

You continue making payments on the $9,000 secured portion through your Chapter 13 repayment plan, typically over three to five years. The unsecured portion may receive little or no payment, and whatever is not paid gets discharged when you complete your bankruptcy plan.

What Types of Property Can You Cramdown?

Cramdowns work for different types of property, but there are important rules about what qualifies and when you can use this option.

Vehicle Cramdowns

Cars, trucks, and motorcycles are the most common property involved in cramdowns. However, you must have purchased the vehicle at least 910 days before filing bankruptcy. This rule prevents people from buying expensive new cars right before bankruptcy and immediately cramming down the loan.

If you bought your car less than 910 days ago, you cannot cramdown the loan. You must either pay the full amount owed or surrender the vehicle. The 910-day requirement equals about two and a half years. If you financed your vehicle longer ago than that, a cramdown may be available.

Investment Property and Other Assets

You can cramdown loans on investment properties like rental houses or commercial buildings. You cannot, however, cramdown the mortgage on your primary residence in most situations. Congress specifically prohibited this to protect home mortgage lenders.

Other types of property like furniture, equipment, and boats may also qualify for cramdowns, but similar timing rules apply. The general rule with cramdowns is that as long as the loan balance exceeds the value of the asset, you can "cramdown" the value to what the item is actually worth. Fully secured debt can’t be crammed down. 

How Do I Know the Value of My Car? 

The most common way to establish value is through resources like Kelley Blue Book or NADA Guides. These provide current market values based on your vehicle's year, make, model, mileage, and condition. The court typically accepts these industry-standard valuation tools, but the final value will be whatever the bankruptcy judge determines is fair market value at the time of your filing.

Your bankruptcy attorney can help you get an accurate valuation for your vehicle. In some cases, you may need a professional appraisal if your vehicle is unusual or if the creditor disputes your valuation. 

Call an Austin County, TX Consumer Bankruptcy Attorney Today

Cramdowns are powerful tools that can help you keep important property while reducing debt in Chapter 13 bankruptcy. We understand the cramdown process and how to present your case effectively to the bankruptcy court. If you are considering bankruptcy in 2026, contact The Fealy Law Firm, PC at 713-526-5220 for a free consultation with our Harris County Chapter 13 bankruptcy lawyer to learn how a cramdown might work in your situation.

Attorney Fealy is Board-Certified in Consumer Bankruptcy Law by the Texas Board of Legal Specialization and has helped thousands of people and businesses find debt relief through bankruptcy.