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Cram Down

By on September 22, 2018

A cram down describes a bankruptcy court order whereby various classes of debt is reduced, forcing creditors to agree to a plan of reorganization.

Sometimes a reorganization plan will be more beneficial to creditors than if all the assets of a bankrupt is liquidated.

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But some creditors refuse to accept it willingly as they are going for blood.

In this case, a judge might feel that forcing creditors to accept certain amounts of money is the best course of action when the bigger picture is taken into account.

Encouraging the court to cram down the plan to all creditors who will be bound by it.

For example, a property might be valued at $200,000 with the borrower having debts of $150,000 and $75,000 on a first mortgage and unsecured personal loan respectively.

A cram down might mean that the first lender receives $150,000 while the second lender will receive a compromised $50,000.



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