Cramdown - Definition
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What is a Cramdown?
In finance, a cramdown refers to the imposition of a bankruptcy restructuring plan by a court despite complaints by certain lenders. Simply put, it is when the court grants a bankruptcy reorganization plan without showing concern for how it may affect creditors.
A cramdown is typically part of a Chapter 13 bankruptcy filing. If a cramdown is authorized, the value of a debt or a loan is reduced to reflect the real market value of collateral used in securing such a loan. While cramdowns are used in different secured debts like the acquisition of vehicles or commercial assets, it is prohibited on mortgage for primary residences.
A Little More on What is a Cramdown
According to Section 1129(b) of the Bankruptcy Code, a cramdown provision gives a bankruptcy court the right to disregard pleas and objections of a secured lender and approve a borrowers restructuring plan provided that it is fair and genuine. Also referred to as a "cram-down deal, this system forcefully makes the lender settle for less than what was in the original agreement; thus the term cramdown (to forcefully make lenders accept loan changes even without their consent).